ISSN No. : 0974-0597
Sinhgad Business Review
R e s e a r c h J o u r n a l O f S i n h g a d I n s t i t u t e O f M a n a g e m e n t, Pune
Vol. - I, Issue - I, July 2009 - June 2010
RESEARCH PAPERS: 1. Risk Perception and Equity Investment Decisions of Employees : A Study of Volume Dimension - Ranjit Singh, Bhowal Amalesh ................................................. 2. Young Consumers’ Attitude Towards Advertising : A Study Komal Nagar.................................................................................. 3. BASEL II What it means to Indian Banks - Prakash Singh............................................................................. 4. Suspension of Accounting Standard (AS) 11 : An Attempt to Defer the Pain - Kamashetty S. B. .............................................. 5. An Inventory Model with Return of Item : A Note - Sinha Pritibhushan ..................................................................... 6. Do Celebrities Really Influence Consumers ? - Kapse Manohar , Pathak Anuradha , Sharma Shilpa ................... 7. An Economic Assessment of the Kolhapur Irrigation Department - Benni B. S. ............................................................ 8. A Study On The Influence Of Demographic Factors On Brand Switching Behaviour of Subscribers of GSM Mobile Services In Pune City - Chaudhari Chetan ................................................. 9. An Emotional Intelligence of the Communicators for Enhancing Agricultural Productivity - Kumud Singh, Shailendra Singh .................................................. 10. Customer Relationship Marketing in Indian Cement Industry - Tiwari A. K., Renavikar A. A. ..................................................... 11. A Study of the Impact of Technical Education in Empowering Indian Women - Ghewari A. A. , Pawar S. N. .............................. BOOK REVIEW: 1. Book Review on Constraints Management, Bookwell, New Delhi, 2009 by S. G. Bhanushali - Reviewers : Gawade S. U., Fernandes B. R. ............................... PH. D. ABSTRACTS: 1. Evaluation of Management Control System for Working Capital Management for Small Scale Industry in Pune - Shanoy Sunil .............................................................................. 2. A Study of the Business practices of Vaishya Communities in India - Sovani Smita ....................................................................
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S B R www.sinhgad.edu
SINHGAD BUSINESS REVIEW Advisory Board Prof. M. N. Navale
Dr. (Mrs.) Sunanda M. Navale
Founder President, STES, Pune, India.
Founder Secretary, STES, Pune, India.
Daniel Penkar Director, Sinhgad Institute of Management, Pune, India.
Editorial Board
— — — — — — — — — — — — — — — — — — — — — — — — — — — — —
Shivaji Gawade
Daniel Penkar
Ashwini Renavikar
Editor-in-Chief
Editor
Assistant Editor
Apte Prakash , Indian Institute Management, Bangalore , India Bagalkoti S. T., Karnatak University, Dharwad, India Bandopadhya, CASAD, Pune, India Choukkar Sadhana, Sinhgad Institute of Management, Pune, India Chitale C. M., Department of Management Science, University of Pune, India Clem Tisdell, The University of Queensland, Australia Deshpande R.S., Institute for Social and Economic Change, Bangalore, India Farnandes B. R., Sinhgad Institute of Management, Pune, India Grover P. S., University of Delhi, Delhi, India Gautam Vinayshil, Indian Institute of Technology(IIT), Mumbai , India Joshi Sharad, Marathwada Institute, Pune, India Kaptan Sanjay, Dept. of Commerce, University of Pune , India Kasande Shailesh, VIM , Pune, India Keskar Anil, Sinhgad Business School, Pune, India Kolte S. B., IMS, Ahamdnagar , India Koshy Abraham, Indian Institute Management , Ahmedabad , India Lad B. N., SIMSREE, Mumbai, India M. Ramananjayalu, University of Banglore, Banglore, India Mehrotra S. C., Marathwada University, Aurangabad , India Murty L. S., Indian Institute Of Management [IIM], Bangalore, India Nandavadekar Vilas.D., Sinhgad Institute of Management, Pune, India Palkar Apoorva, SIMCA, Pune, India Panchamuki V. R.,IED, New Delhi, India Subhash Sharma, Indian Business Academy, Bangalore, India Sushil Kumar, Indian Institute of Management [IIM], Lucknow, India Trivedi Pushpa, Indian Institute of Technology (IIT) , Mumbai, India Tambe Mukund R., Sinhgad Institute of Management, Pune, India Tapan K. Panda, Indian Institute of Management [IIM], Indore, India Vaikunthe L. D., Karnatak University, Dharwad, India
Contact Address: Sinhgad Technical Education Society’s Sinhgad Institute of Management, S. No. 44/1, Vadgaon (Bk.), Opp. Sinhgad Road, Pune - 411 041, India. Ph. No. : +91 - 20 - 2435 6921, Telefax : +91 - 20 - 2435 6592 www.sinhgad.edu, email :
[email protected] Printed & published by Dr. Daniel J. Penkar, Sinhgad Institute of Management, S. No. 44/1, Vadgaon (Bk.), Opp. Sinhgad Road, Pune - 411 041, India. on behalf of Sinhgad Institute of Management, S. No. 44/1, Vadgaon (Bk.), Opp. Sinhgad Road, Pune - 411 041, India. and Printed at Neha Creations, Shop No. 14 Shwetambari Bldg., Near Navashya Maruti Mandir, Off Sinhgad Road, Pune 411030, India and Published at Pune. Chief Editor : Dr. Shivaji U. Gawade, Head Research Cell, Sinhgad Institute of Management, S. No. 44/1, Vadgaon (Bk.), Opp. Sinhgad Road, Pune - 411 041, India.
CONTENT RESEARCH PAPERS: 1.
Risk Perception and Equity Investment Decisions of Employees : A Study of Volume Dimension - Ranjit Singh, Bhowal Amalesh ............................................................................................................................01
2.
Young Consumers’ Attitude Towards Advertising : A Study - Komal Nagar..................................................... 06
3.
BASEL II What it means to Indian Banks - Prakash Singh............................................................................... 15
4.
Suspension of Accounting Standard (AS) 11 : An Attempt to Defer the Pain - Kamashetty S. B. ..................26
5.
An Inventory Model with Return of Item : A Note - Sinha Pritibhushan ..........................................................33
6.
Do Celebrities Really Influence Consumers ? - Kapse Manohar , Pathak Anuradha , Sharma Shilpa ............................................................................................36
7.
An Economic Assessment of the Kolhapur Irrigation Department - Benni B. S. ............................................42
8.
A Study on the Influence of Demographic Factors on Brand Switching Behaviour of Subscribers of GSM Mobile Services in Pune City - Chaudhari Chetan ................................................................................................................................................53
9.
An Emotional Intelligence of the Communicators for Enhancing Agricultural Productivity - Kumud Singh, Shailendra Singh ............................................................................................................................61
10. Customer Relationship Marketing in Indian Cement Industry - Tiwari A. K., Renavikar A. A. ...............................................................................................................................65 11. A Study of the Impact of Technical Education in Empowering Indian Women - Ghewari A. A. , Pawar S. N. .................................................................................................................................74 BOOK REVIEW: 1.
Book Review on Constraints Management, Bookwell, New Delhi, 2009 by S. G. Bhanushali - Reviewers : Gawade S. U., Fernandes B. R. .........................................................................................................80
PH. D. ABSTRACTS: 1.
Evaluation of Management Control System for Working Capital Management for Small Scale Industry in Pune - Shanoy Sunil .................................................................................................82
2.
A Study of the Business practices of Vaishya Communities in India - Sovani Smita ..........................................................................................................................................................87
From The Editor's Desk We are pleased to present Sinhgad Business Review (SBR), a peer-reviewed Research Journal of Sinhgad Institute of Management, Pune. The journal is multidisciplinary in nature and encompasses wide range of areas such as Management, Economics, Law, Computers and Banking. Research is a powerful driver for change and a tool-cum strategy for offering solutions to problems and challenges. “In God we trust; all others bring data" said Dr. J. M. Juran. This issue focuses on the offbeat areas to ensure that our research readers are thought-provoked to create insights in learning anew what is already known. This endeavor has been set-up to encourage authentic attempts to leverage competent work place efforts by way of quantifiable and qualitative findings through researched contributions. Researching has no boundaries but only those conditioned by criteria which help one to upgrade. At the very outset, we express our gratitude to all the members of the editorial board and contributors of this issue. The editorial team will continue to bring out the relevant and application oriented research through the platform of SBR. Issac Asimov once mentioned that “Writing to me, is simply thinking through my fingers”. We, the editorial team of SBR strongly believe in this quote and our future issues of SBR will keep on reflecting the same. On behalf of the editorial team, we are indebted to Prof. M. N. Navale, Founder President, Sinhgad Technical Education Society and Dr. Mrs. Sunanda M. Navale, Founder Secretary, Sinhgad Technical Education Society for their unflinching support. Constructive feedback is awaited to propel continuous improvement. Wish each one of you thoughtful reading. -SBR Editorial Team
Copyright © 2009 Sinhgad Institute of Management, Pune. All rights reserved. This journal and the individual contributions contained in it are protected by the copyright of Sinhgad Institute of Management, Pune and the following terms and conditions apply to their use: Photocopying: Single photocopy of single article may be made for personal use as allowed by national copyright laws. Permission of the publisher and payment of a fee is required for all other photocopying, including multiple or systematic copying, copying for advertising or promotional purposes, resale and all forms of document delivery. Permissions may be sought directly from The Editor, SBR, Research Journal, Sinhgad Institute of Management, S. No-44/1, Vadgaon (bk), Off Sinhgad Road, Pune – 411041. Derivative Works: Subscribers may reproduce tables of contents or prepare lists of articles including abstracts for internal circulation within their institutions. Electronic Storage or Usage: Permission of the Publisher is required to store or use electronically any material contained in this journal, including any article or part of an article. Except as outlined above, no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission from the Editor, SBR , Research Journal of Sinhgad Institute of Management, Pune. Disclaimer: The publisher, Sinhgad Institute of Management, Pune and editors can not be held responsible for errors or any consequences arising from the use of information contained in this journal. Views and opinions expressed in the articles/papers do not necessarily reflect those of the publisher and editors. All efforts are made to ensure that published information is correct. The publishers and editors are not responsible for any errors caused due to oversight or otherwise.
ISSN No. : 0974-0597
Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
Risk Perception and Equity Investment Decisions of Employees: A Study of volume Dimension Ranjit Singh1, Bhowal Amalesh2
Abstract:
Introduction:
The objective of the present paper is to establish the association between the level of risk perception in respect of equity shares and volume of investment in equity shares by the employees. The study is done on the employees of Oil India Limited [OIL]. Structured questionnaire was used to collect data from the employees. It is found that the risk perception of the employees in respect of equity shares have an association with the volume of equity investment made in the past as well as in the present and this relationship is expected to continue in the future also. Another finding of the study is that inspite of same level of risk; people have shown their willingness to allocate more of their wealth to the equity shares in the future, this is because of gaining more knowledge and skill to manage risks.
Risk Perception:
Key Words: Risk Perception, volume of Equity Investment, Oil India Limited [OIL]
Risk Perception is the combination of two words 'Risk' and 'Perception'. Risk can be defined as the probability of deviations from the expected result. Perception can be defined as the process by which individuals organise and interpret their sensory impressions in order to give meaning to their environment (Robins S. et al, 2007). Therefore, 'Risk perception' is the subjective judgment that people make about the characteristics and severity of a risk. Risk perception examines the opinions of people when they are asked to evaluate hazardous or risky activities, substances and technologies (Slovic, 1987). Perceptions of risk play a prominent role in the decisions people make (Slovic, 1987). It has been established from the earlier studies that the risk perception can be managed if one is aware of the various dimensions of a risk and the reason for the said level of risk perception (Singh R & Bhowal A, 2008). Risk perception can be managed and the policy makers should try to manage the risk perception for implementing various policies etc (Bhowal A & Singh R, 2006). This can be possible only if one is aware about his/her level of risk perception. Risk Perception and the Equity Share Investment:
1.
Faculty, Assistant Professor Department of Business Administration Assam University (A Central University) Silchar-788011 E-mail:
[email protected]
While going for investment in Shares people try to make proper tradeoffs between risk and return (Fischer D E & Jordan R J, 2006). Moreover, people are generally risk averse (Kahneman D, and Tversky A, 1979). They like to invest in such instruments, which give higher return for the same amount of risk, or the same return for lesser amount of risk i.e. they make proper tradeoffs between risks and return while going to invest in a particular investment instrument. It is found in the earlier research that the people's level of risk perception affects their equity investment behaviour (Singh R & Bhowal A, 2009). This is because the return from the equity share is not certain and hence the investment in equity share is considered to be one of the risky investments.
2.
Faculty, Professor & Head Department of Commerce Assam University (A Central University) Diphu Campus E-mail:
[email protected]
There are different aspects of investment behaviour with respect to time, volume, mode of investment etc. In this study the volume of investment in equity shares over different periods of time has been considered. The importance given to any investment is reflected in the volume of that particular
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Risk Perception and Equity Investment Decisions of Employees: A Study of volume Dimension —Dr. Ranjit Singh —Dr. Amalesh Bhowal
investment out of the total investment. It was found in a study done by James J. Choi, David Laibson, Brigitte Madrian, and Andrew Metrick (1998) that high past returns on company stock induce participants to allocate more of their contributions to the company stock. The volume of investment also depends upon the psychology of the persons. Normally people are used to keep their investment in different mental compartments and over a period of time they want to maintain the same level of investment in their different mental compartments depending on the risk and return associated with the same (Shefrin and Statman, 1994). From the above study, it has been found that there is no such direct study investigating the relationship between risk perception in respect of equity shares and volume of equity investment. Therefore, the current study is undertaken to explore the relationship between the two. Scope of the Study: The present study is an empirical one and the employees of Oil India Limited [OIL] were taken as a case for this purpose. In this study, only the equity investment made with the intention of holding it for relatively longer period is considered and volume of equity purchases with the intention of undertaking trading in equity shares are not considered. The Study was conducted during the time period of 1st April, 2007 to 31st October, 2007. The study covers overall equity investment made by the employees as a proportion of total investment. Objective of the Study: In this study the aim is to investigate the relationship between the risk perception of the employees in respect of equity shares and volume of equity investment made by the employees. Hypothesis of the Study: In a study done by Singh R and Bhowal A (2009) it has been found that there is a relationship between risk perception in respect of equity shares and equity investment behaviour. But in that study only time driven aspect of investment behaviour has been considered and volume dimension of investment behaviour has not been considered. Ronald C. Lease et al (1974) did a study on individual investors: attributes and attitudes, where the attitudes and attributes related to the volume of equity investment were ascertained of which the attitude of the investors towards associated risk was one. All these studies indicate that there is no significant study conducted to investigate into the relationship between 'Risk Perception in respect of the Equity Shares' and the 'Volume of Equity Investment'. To explore this area the null hypothesis considered for the study is given as follows: “There is no association between the 'Risk Perception in respect of Equity Shares' and 'Volume of Equity Investment' made by the employees of OIL”.
Methodology of the Study: Universe of the Study: All the employees working in OIL at Duliajan Head Office (i.e. Executives, Non-Executives) constituted the universe of the study. The size of the universe was 8480. Sample & Sample Unit: Here each employee was considered as the sample unit of the study. Sample selection was based on simple random sampling basis. Considering the time and resource constraints only 378 employees were finally selected as the sample. Questionnaire Design: After a pilot survey and discussions with the employees as well as the people who are experts in this area of research, a questionnaire was framed. As per the objective, the information needed was about the risk perception of the employees with respect to the equity shares. So, the question was related to their perception of risk for the equity share investment on a five point scale [i.e., Very Risky, Risky, Moderate, Safe and Absolutely Safe]. Then the next part of the questionnaire was related to the volume of the investment. It is very difficult to get accurate data regarding the volume of investment in shares made by the employees. Therefore, it was decided to collect the data relating to volume of investment in equity shares as a proportion of total investment made in past, present and expected future investment. Accordingly five different levels were identified. All are in fact proportions out of the total investment made. These are 'No Investment', 'Less than 25%', 25% - 50%, 50% - 75% and More than 75%. The information was collected for past, present and future investments. Method of Data Analysis and Interpretation: The present research work was carried out by using SPSS, statistical software package, tables, Cross tables etc have been prepared and Cramer's V Test was done, as and when required to arrive at logical conclusion on the sample data. Cramer's V is a chi-square based measure of association that involves dividing the chi-square statistic by the sample size and taking the square root of the result. Cramer's V is a measure of association based on chi-square. In case the value of any of the cells' value, in the table is less than 5, then the chi-square cannot be used and Cramer's V is the more acceptable than chisquare (Sidine Sigel and John Castellan, 1988). In the present study the interpretation of the values of Cramer's V is done as per the Exhibit 1. educationforallinindia.com/ - 38k
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Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
Exhibit 1 Cramer's V Interpretation Scale Cramer's V Value
Upto 0.20
0.20 0.40
0.40 0.60
0.60 -0.80
0.80 1.0
Interpretation of Values
Very low level
Low level of
Moderate level
High level
Very high level
ofAssociation
Association
of Association
of Association
of Association
The Findings: The analysis, the findings, and the interpretations of the current study are reported in the following paragraphs. Risk Perception and Volume of Equity Investment in the Past: In Table 1, 'Risk Perception in respect of the Equity Shares' and the 'Volume of Investment in the Equity Shares in the Past' are presented.
Risk Perception and Volume of Equity Investment in the Present: Table 2 shows the association between 'Risk Perception in respect of Equity shares' and 'Volume of Investment in Equity shares in the Present'. As presented in the table 2, it is observed in the sample that the associationship between 'volumes of investments in the equity shares in present' and the 'risk perception in respect of
Table 1: ‘Risk Perception in respect of Equity Shares' and 'Volume of Investment in the Equity Shares in Past' Volume of Investment in the Equity Shares in Past Risk Perception in respect of Upto 25% 50% No 75% Equity Shares 25% - 50% - 75% investment and above Total 48 15 6 0 0 69 Count Very Risky 12.70% 4.00% 1.60% 0.00% 0.00% 18.30% % of Total Count 51 69 22 2 1 145 Somewhat Risky % of Total 13.50% 18.30% 5.80% 0.50% 0.30% 38.40% Count 51 22 8 1 0 82 Moderate % of Total 13.50% 5.80% 2.10% 0.30% 0.00% 21.70% Count 21 32 26 0 0 79 Somewhat Safe 5.60% 8.50% 6.90% 0.00% 0.00% 20.90% % of Total Count 0 3 0 0 0 3 Absolutely Safe 0.00% 0.80% 0.00% 0.00% 0.00% 0.80% % of Total Count 171 141 62 3 1 378 Total % of Total 45.20% 37.30% 16.40% 0.80% 0.30% 100.00% Source: Compiled From the Questionnaire In the sample, as presented in table 1, the observed associationship between 'volume of investments in the equity shares in past' and 'risk perception in respect of equity shares' is of low degree since calculated Cramer's V is equal to 0.201. Although the relationship is of low degree, but given the test, the relationship that has been observed in the sample is traceable even in the population because the calculated significance value (i.e. 0) is less than 5% level of significance. The highest number of people [38.40%] are of the opinion that the equity shares are 'Somewhat Risky' and 18.30% of the people had invested upto 25% of their total investment into it thinking it to be of 'Somewhat Risky' type, which is highest in that category. So, by looking at the table 1 it seems that high risk perception need not necessarily result into low investment and low risk perception need not necessarily results into high investment.
investment in equity shares' is of very low degree since calculated Cramer's V is equal to 0.162. Here also the relationship though is of very low degree, it is statistically significant, and given the test, the relationship that has been observed in the sample is traceable even in the population because the calculated significance value (i.e. 0.001) is less than 5% level of significance. In the present also, almost the same trend is being seen with a slight change that the number of people in the 'No Investment' category has increased marginally. So, it can be concluded that a few people who had invested in the past, in the course of time have disinvested those shares. The Risk Perception and the Volume of the Equity Investment Expected in the Future: The cross tabulation between 'Risk Perception in respect of
Risk Perception and Equity Investment Decisions of Employees: A Study of volume Dimension —Dr. Ranjit Singh —Dr. Amalesh Bhowal
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Table 2 'Risk Perception in respect of Equity shares' and 'Volume of Investment in Equity shares in the Present' Risk Perception in respect of Equity Shares Very Risky Somewhat Risky Moderate Somewhat Safe Absolutely Safe Total
Count % of Total Count % of Total Count % of Total Count % of Total Count % of Total Count % of Total
No investment 52 13.80% 75 19.80% 50 13.20% 27 7.10% 0 0.00% 204 54.00%
Volume of Investment in the Equity Shares in Past Upto 25% 50% 75% 25% - 50% - 75% and above 11 6 0 0 2.90% 1.60% 0.00% 0.00% 48 21 1 0 12.70% 5.60% 0.30% 0.00% 24 7 0 1 6.30% 1.90% 0.00% 0.30% 37 15 0 0 9.80% 4.00% 0.00% 0.00% 3 0 0 0 0.80% 0.00% 0.00% 0.00% 123 49 1 1 32.50% 13.00% 0.30% 0.30%
Total 69 18.30% 145 38.40% 82 21.70% 79 20.90% 3 0.80% 378 100.00%
Source: Compiled From the Questionnaire Equity shares' and the 'Volume of Investment in the Equity Shares in the Future' is reflected in the table No.3. It shows that in the sample the observed associationship between 'volume of investments in the equity shares in future' and 'risk perception in respect of investment in equity shares' is of low degree since calculated Cramer's V is equal to 0.219. Given the test, the relationship that has been observed in the sample is traceable even in the population because the calculated significance value (i.e. 0) is less than 5% level of significance. From table 3 it seems that the number of people who are willing to invest in the future has seen an increasing trend and the people are also thinking of increasing their allocation of
wealth toward equity shares in the future, irrespective of their level of risk perception. From the above analysis it is seen that there is a will to increase the volume of investment in equity shares irrespective of the level of risk perception, so it can be inferred that risk perception is not the only influencing factor in equity investment decisions but at the same time the knowledge and skill to manage and handle risk is also a significant factor in influencing equity investment decision making process (Singh R & Bhowal A, 2009). Over the period of time these people are expected to acquire the knowledge and skill to manage and handle the risk associated with equity investment. In this regard their past experiences and the experiences of their peers may also play a significant role.
Table 3 'Risk Perception in respect of Equity shares' and 'Volume of Investment in Equity Shares in Future' Volume of Investment in the Equity Shares in Past Risk Perception in respect of Upto 25% 50% No 75% Equity Shares 25% - 50% - 75% investment and above Total 35 32 2 0 0 69 Count Very Risky 9.30% 8.50% 0.50% 0.00% 0.00% 18.30% % of Total Count 17 78 44 5 1 145 Somewhat Risky % of Total 4.50% 20.60% 11.60% 1.30% 0.30% 38.40% Count 12 42 18 10 0 82 Moderate % of Total 3.20% 11.10% 4.80% 2.60% 0.00% 21.70% Count 13 37 23 6 0 79 Somewhat Safe 3.40% 9.80% 6.10% 1.60% 0.00% 20.90% % of Total Count 0 3 0 0 0 3 Absolutely Safe 0.00% 0.80% 0.00% 0.00% 0.00% 0.80% % of Total Count 77 192 87 21 1 378 Total % of Total 20.40% 50.80% 23.00% 5.60% 0.30% 100.00% Source: Compiled From the Questionnaire
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
Overall Analysis: It is seen in the above paragraphs that risk perception was the influencing factor in the past regarding the volume of investment in equity shares, it is influences the volume of investment in respect of equity shares in the present and it is expected that it will continue to affect in the volume of equity investment in the future also. But as evident in tables 1, 2 and 3, the relationship between risk perception and volume of equity investment is of low degree. It means that high risk perception in respect of equity shares need not necessarily result in low investment and vice versa. Regarding the volume of investment in the equity shares in the future it is seen that a large number of people are willing to invest relatively more amounts in the equity shares irrespective of their level of risk perception. It is evident here that the investments in the equity shares are changing without any change in the level of risk perception. Thus it can be concluded that although the level of risk perception is the determining factor in the investment behaviour, at the same time, knowledge and skill to handle and manage risk is also a determining factor (Lennart S, 2002). Conclusion: From the above analysis it is found that there is an influence of risk perception in respect of equity shares on the volume of investment in equity shares. Although the relationship is weak, it is statistically significant. Therefore the null hypothesis considered in the study is not tenable here, given the test and methodology. So, the study reiterates the fact that risk perception has an influence on the equity investment decisions of the people as it was established in an earlier research (Singh R & Bhowal A, 2009). It is evident from the above analysis that as the relation between the two variables considered is of low degree, the high risk perception in respect of equity shares need not necessarily result in low investment. As reflected in table 3, it is seen that, in future, people would be willing to allocate more of their wealth to equity investment although their risk perception is same. It can be concluded that although the level of risk perception is the determining factor in the volume of investment, time knowledge and skill to handle and manage risk are also determining factors. This was also concluded by Lennart S (2002) in one of his studies. So, these employees had acquired the necessary knowledge and skill to manage and handle risk from different sources like the print and electronic media, their experience from investing in the equity shares and the experience of their peers from the equity market. Scope of Future Research: The study is an attempt to understand the association between risk perception and volume of equity investment. The study is conducted in one organisation only. Therefore, in future, employees of more organisations can be considered for the
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study for the generalizations of the findings. Studies can also be conducted to examine the relation between risk perception and other aspect of investment behaviour like mode of investment. Impact of demographic variables on risk perception as well as on investment behaviour can be another area of future study. References: Bhowal A & Singh R (2006), Bank Employees' Risk Perception as Entrepreneurship Culture Initiator and Adopter, National Seminar on Global Convergence on commerce Education, Organised by NEHU, November 7-9 Fischer D E & Jordan R J (2006), Security Analysis and Portfolio Management, 6th Edition, Prentice Hall of India James J. Choi, David Laibson, Brigitte Madrian, Andrew Metrick (1998); Employees' Investment Decisions about Company Stock; unpublished Kahneman D and Tversky A (1979), "Prospect Theory: An Analysis of Decision Making Under Risk," Econometrica, XLVII, 263-291 Lennart S (2002), The Allegedly Simple Structure of Experts' Risk Perception : An Urban Legend in Risk Research Science, Technology & Human values,Vol.27,No. 4, pp.443-459 Robins S, Judge T A & Sanghi S (2007), Organizational Behaviour, Prentice Hall of India, fist edition Ronald C. Lease, Wilbur G. Lewellen and Gary G. Schlarbaum (1974), The Individual Investor: Attributes and Attitudes, The Journal of Finance, Vol. 29, No. 2 Shefrin, H. and M. Statman (1994). “Behavioral Portfolio Theory,” unpublished paper, Santa Clara University Sidine Sigel and John Castellan (1988), Non-Parametric Statistics for Behavioural Sciences; Mc Grow hill Book Company, Singapore Singh R & Bhowal A (2008), Risk Perception-The Theoretical Kaleidoscope, Vanijya, Volume 18 Singh R & Bhowal A (2009), “Development of Entrepreneurial Culture by Inculcating the Culture of Equity Investment”, Business Vision, Volume 5, No. 1 Singh R & Bhowal A (2009), Risk Perception Dynamics and Equity Share Investment behaviour, Indian Journal of Finance, June Issue Slovic, P. (1987) Perception of risk, Science, 236 www.oilindia.com
ISSN No. : 0974-0597
Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
Young Consumers' Attitude Towards Advertising : A Study 1
Komal Nagar
Abstract:
Introduction:
India's young consumers, who are fashion conscious, should drive a demand forward. It is this new generation that is changing and setting trends in ways they think are important to them and make their presence felt in the society. For this change to happen, the basic elements are their behaviour and attitude. Therefore the study of one of the major components of marketing, namely advertising, and its impact on the young consumers is an important area of study for the marketers. Most of the advertising in the media is under scrutiny by the consumers. Do the various tools and tactics used in the advertisements bind the young consumers to see the advertisements and in turn affect their behavior?
Advertising has played a major role in consumer marketing, and has enabled the companies to meet the communication and the other marketing objectives. Typically, advertising is used to inform, persuade, and remind consumers. It reinforces their attitudes and perceptions.
The present paper investigates the attitude of the young consumers towards advertising in general, and also tries to analyze, if there is a difference in the attitude of males and females towards advertising. There are several factors which are associated with advertising. One of the purposes of the present research is to examine the various dimensions of advertising that affect the attitude of youth towards advertising in general. The most significant finding from the present study is that in general, young consumers have a positive attitude towards advertising and that they consider advertising to be good for the economy. Key Words: Advertising, Consumer Behaviour, Attitude, Young consumers.
1.
Assistant Professor, The Business School, University of Jammu E-mail :
[email protected]
Advertising is a very familiar word. Everybody knows or thinks that he knows what advertising is. This is because from the early morning till late at night, people are exposed to hundreds of messages through the various media. All these messages aim to influence, to persuade and to shape everybody's actions and decisions. And they do influence life greatly. To define advertising with any precision is difficult. Even the latest dictionaries and encyclopedias have failed to define it accurately, since the advertising of yesterday is not the same as the advertising of today. There have been vast changes. Whatever be the case, advertising can be accepted as a commercial force which has brought about the development of many of the largest and most profitable industries. The word advertising has been derived from the Latin word 'adverto' meaning 'turning around'. Advertising turns one's mind or attention towards a thing. This is what is called the purpose of advertising and the objective of the advertiser. An illustration would make it still easier. A tells something to B. It is communication. When A sells something to B, it is called marketing (selling). When A tells B to buy something, it is advertising. In other words, advertising is marketing communication. Advertising thus consists of making potential buyers aware of a product or service and influencing their attitudes. The “youth” form a major portion of the target audience of the advertising companies. A basic understanding of the behaviour, attitudes and the tastes of youth is of considerable significance to the marketers to design their advertising strategy accordingly. The congestion with the rapid flow of ideas, the changing street scenes and the fusion of various cultures makes understanding of the youth even more complicated. Against this backdrop, understanding the youth would help marketers further to position their products. As India prepares to claim its stake as a leading global power,
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
the opportunities for, and consequently the pressure on today's youth is considerable. India's young consumers, who are fashion conscious, should drive a demand forward. It is this new generation that is changing and setting trends in ways they think are important to them and make their presence felt in the society. For this change to happen, the basic elements are their behavior and attitudes. Therefore, the study of one of the major components of marketing, namely advertising, and its impact on the young consumers is an important area of study for the marketers. Attitude towards the advertising - A study: In modern times, the consumer is at the centre of every marketing system. For a product or service to sell at all, with or without advertising, it must appeal to and satisfy some needs for some consumers at least. These needs thus dominate the behavior of the modern consumer. The producers should identify those motives, which prompt the consumers to purchase the product or service offered, or the producers can offer the products wanted by them. However, the behaviour of each individual differs. In modern times advertising is not a magic capable of causing people to buy things they do not need. Advertising only helps people to rationalize their purchases of products or services that they want. Advertising value is a representation of the perceived value of advertising to consumers. The value of advertising serves as an important determinant of consumer response. Researchers have focused on the value of advertising information (Cox, 1962; Nelson, 1970; Ratchford, 1980; Stigler, 1961). Advertising value is defined as a subjective evaluation of the relative worth or utility of advertising to consumers. This definition is related to the view of economists insofar as advertising value is understood to be a subjective measure of the usefulness or want satisfaction resulting from a community (Ducoffe, 1995). Several other reasons suggest why advertising value is a potentially useful concept. First, there is the continuing diversion of spending to shorter term promotional strategies. Since 1975, for example, advertisement's share of the total marketing communication budget of packaged goods manufacturers has fallen dramatically from 65% to 25% (Myers, 1993). This trend may be partially rooted in consumer dissatisfaction with the value of advertising and an associated lessening over time and its ability to move people to action. Bogart (1985) argues that chances of careful processing of advertisements are lowered by the high number of ads competing for individual attention on a daily basis. Limited time and mental resources make it difficult for the audience to dedicate sufficient attention to most ads. Several studies tend to show a generally negative public attitude towards advertising (Alwitt and Prabhakar, 1994; Zanote, 1981). The purpose of advertising is not to entertain but to generate sales. However, the sales of a commodity are driven by consumer demand which in turn is the outcome of one's attitude. One of the aims of advertising, therefore, is to change or influence attitudes. Attitude refers to a person's enduring favourable or unfavourable cognitive evaluations, emotional feelings and
7
action towards some object. Sometimes attitude towards a brand or a commodity is also affected by one's attitude towards the advertisement of that brand or commodity. Thus, for marketers and advertisers, it is absolutely essential to understand the attitudes of the consumers towards ads so that consumers' attitudes may be changed. Research Objectives: The purpose of this research is two fold: One of the purposes of the present research is to find out the various dimensions of advertising that affect the attitude of the public towards advertising in general. Secondly, the research work aims to study if advertisements bind the youth to see advertisements and in turn, affect their attitude towards them. Accordingly, the study has the following objectives: — To investigate the various dimensions of advertising
affecting the attitude of the youth towards advertising — To study the attitude of the youth towards advertising in
general — To analyze if there is a difference in the attitude of males
and females towards advertising. Research Methodology: The effect of advertisement on multifaceted youth is studied through the primary data. The data has been collected with the help of a well structured and non-disguised questionnaire to test the influence of advertisements. A sample size of 100 respondents, comprising different age groups (all below 30 years of age), educational background, sex, and income was chosen for the survey. We have chosen the survey technique as the main research tool as it enables us to get first hand information from the prospective customers. It provides us with real insights into the complex consumer mindset and their thinking process. Sampling Method And Sample Size: The respondents were selected from Jammu city. Judgemental and convenience sampling was used in the selection of the respondents. The participants in the experiment were 100 male and female respondents from different institutes of higher and professional education. Students do represent a segment of relevant consumers, and there may not be much difference between the student consumers and the non-student consumers. The group consisted of fifty three female and forty seven male students. The group also consisted of professionals who were in the income earning group. Data was analyzed on the basis of the responses generated from 100 respondents consisting of youth (upto age 30 years) which included students and the working professionals. Research Instrument And Method: The main source of data collection used in the present research is the questionnaire. A structured questionnaire by Polly and Mittal (1993) was used to measure the general attitude of the consumers towards advertising. The questionnaire consisted
Young Consumers’ Attitude Towards Advertising : A Study —Komal Nagar
8
Table 2 Demographic characteristics of the respondents
of 30 statements concerning different aspects of advertising, and the responses to these statements were measured on a 5point Liker Scale, with 1 representing 'highly disagree' and 5 representing 'highly agree'. The respondents were thus asked to indicate their level of agreement/disagreement with each statement on a five point Liker scale. People from all strata of society were included in the study to make the sample more representative. The variables used for this study were identified from the research literature (See the Table 1).
No. of Respondents Total respondents
100 Age
15-20
8
8%
21-25
80
80%
26-30
12
12%
Table 1 Construct operationalization S. N. VARIABLE
Percentage
Educational Qualification
ITEM NO.
Below Graduation
13
13%
1
Attitude towards advertising
1,24,28
Graduation
27
27%
2
Use of sex in advertising
26
BE
7
7%
3
Promotion of materialism through advertising
5,11,15,25,27
MBBS
11
11%
Post Graduation
17
17%
4
Pleasure in advertising
4,14,19
Ph.d
7
7%
5
Ethics in advertising
3,6,13,18,21,30
MBA
18
18%
6
Economic effects in advertising
16,20,23,29
7
Social role and image
7,8,9,10,17
8
Information provided through advertising
2,12,22
Income Income Group
10
10%
No Income Group
90
90%
Gender
Data Analysis: All the data collected was statistically analyzed with the help of SPSS 11.0 version. The responses have been analyzed using mean and t-test, to derive inferences. This section provides the detailed analysis and interpretation of the responses to the issues. Table 2 gives the description of demographic characteristics of the respondents. The data has been analyzed with respect to sex and age of the respondents. The responses to the various questions have been represented in the tables. To find out the level of agreement/disagreement with different statements weighted average scores have been calculated. Weights 5,4,3,2 and 1 have been given to the responses 'strongly agree (SA)', 'agree (A)', 'neither agree nor disagree (NA/ND)', 'disagree (D)' and 'strongly disagree (SD)' respectively. Hence, a higher score indicates the greater agreement with a statement a lower score represents the greater disagreement. The following discussion elaborates the predisposition of the multi-faceted youth towards advertising.
Male
47
47%
Female
53
53%
Statement 1: Advertisement is essential. Statement 24 : Overall, I consider advertising a good thing. Statement 28 : My general opinion of advertising is unfavourable The results in Table 3 show that maximum respondents strongly agree that advertising is very essential and they feel that it is a good thing and their opinion towards advertising is favourable. Table 4 Results of t-test Means Females
3.82
Males
4.06
t-stat
t-critical
1.88
1.98
General Attitude Towards Advertising 1. Null Hypothesis: There is no difference in the attitude of males and females towards advertising. Table 3 General Attitude Towards Advertising Statements 1 24 28
SA 49 14 7
A 39 62 14
NA/ND 2 12 23
D 6 8 48
SD 4 2 8
Mean 4.21 3.71 2.65
S.D. 1.03 1.01 1.05
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
Since the calculated value of 't' is less than the crucial value at 5%, the null hypothesis is accepted. Table 4 shows that the perception of both the males and the females is same for the above mentioned results i.e. they agree that advertising is essential. Inference: Perception of both males and females is the same in all the three cases. Thus in general, the young consumers perceive advertising as an essential part of their lives, their opinion about advertising is favorable. They look at advertising as a good thing. Use of Sex In Advertising: Advertising has been a target of criticism for decades. Advertising has been hailed as a capitalistic virtue, an engine of free market economy, and a promoter of consumer welfare. Its detractors on the other hand accuse it of an array of sins ranging from an economic waste to promotion of harmful products, from sexism to deceit and manipulation, from triviality to intellectual and moral pollution.
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Table 7 Promotion Of Materialism Through Advertising Statements SA
A NA/ND D
SD
mean
S.D.
5
6
39
22
25
4
3.12
1.12
11
15
36
28
13
4
3.39
1.15
4
3.36
1.13 1.19 1.08
15
16
30
21
17
25
18
30
21
25
3
3.32
27
14
41
23
15
5
3.44
regarding statements relating to promotion of materialism through advertising. Statement 5 : The Ad persuades people to buy things they should not buy. Statement 11 : The Ad is making us a materialistic society overly interested in buying and owning things. Statement 15 : The Ad makes people buy unaffordable products to show off.
2. Null Hypothesis: There is no difference in the attitude of males and females towards the use of sex in advertising
Statement 25 : The Ad makes people live in the world of fantasy.
From the Table 5 it is evident that the perception of both males and females is the same i.e. both males and females neither
Statement 27 : The Ad People buy a lot of things they do not really need.
Table 5 Use of sex in advertising
Thus, respondents are moderately negative about the promotion of materialism through advertising. They blame advertising for making people buy a lot of things they do not Table 8 Results of t-test
Statement
SA
A
NA/ND
D
SD mean S.D.
26
12
19
30
25
14
2.92
1.22
agree nor disagree with the statement that “There is too much use of sex in advertising these days”. Since the calculated value of 't' is less than the crucial value at 5%, the null hypothesis is accepted. Table 6 shows that the Table 6 Results of t-test Means Females
2.28
Males
2.15
t-stat
t-critical
0.02
1.98
Means Females
3.28
Males
3.18
t-stat
t-critical
1.03
1.98
really need. Majority of respondents feel that advertising makes people live in a world of fantasy and it is making us a materialistic society, overly interested in buying and owning things. Since the calculated value of 't' is less than the crucial value at 5%, the null hypothesis is accepted. Table 8 shows that the perception of both the males and the females is the same for the above mentioned results.
perception of both the males and the females is the same for the above mentioned results. Inference: Perception of both the age groups and both the genders is the same i.e. public neither agrees nor disagrees that there is excessive sex in advertising now a days.
Inference: Both males and females agree with the fact that materialism is promoted through advertisement.
Promotion of Materialism Through Advertising :
Pleasure in Advertising:
Null Hypothesis: There is no difference in the attitude of males and females towards promotion of materialism through advertising.
Null Hypothesis: There is no difference in the attitude of males and females towards pleasure in advertising.
Table 7 shows the responses of the young consumers
Table 9 shows the responses of the respondents regarding the statements relating to the pleasure in advertising.
Young Consumers’ Attitude Towards Advertising : A Study —Komal Nagar
10 Table 9 The Pleasure in Advertising
Table 11 Ethics In Advertising
Statement SA A NA/ND D
SD
mean
S.D.
8
14
3.80
0.82 1.27 0.94
4
61 1
14
14
40 9
19
12
16
3.36
19
54 2
9
9
24
3.90
Statement SA A NA/ND D SD mean
S.D.
3
7
19
37
26
8
2.87
1.07
6
7
12
25
38 11
2.5
1.21
13
10 24
33
24
6
2.88
1.25
18
5
23
27
25 17
2.70
1.18
21
11 27
23
30
5
3.03
1.19
30
14 37
25
13
8
3.33
1.18
Statement 4 : Quite often an ad is amusing and entertaining. Statement14 : Sometimes I take pleasure in thinking about what I see or hear or read in an ad. Statement 19 : Sometimes advertisements are even more enjoyable than the other media contents. Table 10 Results of t-test Means Females
3.50
Males
3.79
t-stat
t-critical
0.97
1.98
Statement 30 : Some products or services promoted in advertising are bad for our society. As it can be seen in the Table 11, some of the respondents do not think that advertisements distort values of the youth and insult intelligence of an average consumer. They are indifferent towards the statement that advertisements in Table 12 The Results of t-test
Responses of majority of respondents reveals that advertisements are considered to be entertaining and enjoyable. Since the calculated value of 't' is less than the crucial value at 5%, the null hypothesis is accepted. Table 10 shows that the perception of both males and females is same for the above mentioned results i.e. Both males and females agree with the fact that advertisements are entertaining and enjoyable. Inference: The perception of both the males and the females is same i.e. both the males and the females find pleasure in advertising. Ethics In Advertising: 5. Null Hypothesis: There is no difference in the attitudes of males and females towards the ethics in advertising. The Table 11 shows the responses of the respondents regarding the statements relating to the ethics in advertising.
Means Females
2.15
Males
2.27
t-stat
t-critical
1.27
1.98
general are misleading and promote undesirable values in society. Some of the respondents disagree that some of the advertised products are bad for the society. Since the calculated value of 't' is less than the crucial value at 5%, the null hypothesis is accepted. The Table 12 shows that the perception of both males and females is the same for the above mentioned results. Inference: The perception of both males and females is the same towards the ethics in advertising. In general, both males and females believe that advertising is not misleading or bad for the society.
Statement 3: In general an ad is misleading. Economic Effects Of Advertising: Statement 6 : Most ads insult the intelligence of an average consumer. Statement 13: An Ad promotes undesirable values in our society.
6. Null Hypothesis: There is no difference in the attitudes of the males and the females towards the economic effects of advertising.
Statement 18 :In general an ad presents the true picture of the product advertised.
The Table 13 shows the responses of the respondents regarding statements relating to economic effects of advertising.
Statement 21 : Most advertisements distort the values of our youth.
Statement 16 : In general, ad results in lower prices.
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
Table 13 The Economic Effects Of Advertising Statement SA A NA/ND D
11
Statement 8: Ad help raise our standard of living.
SD mean
S.D.
Statement 9: Ad results in better products for the public.
16
5
4
31
36
12
2.63
1.03
Statement 10: Ads help me to know what people with lifestyle
20
18 45
22
6
7
3.62
1.07
Table 15 The Social Role And Image
23
2
19
32
34
11
2.66
0.98
29
24 47
14
9
4
3.79
1.04
Statement SA
A NA/ND D
SD mean
S.D.
7
15
39
17
20
6
3.35
1.20
Statement 20 : In general, ad helps our nation's economy.
8
10
37
27
22
2
3.32
1.00
Statement 23 :Mostly, ad is wasteful of economic resources. Statement 29 : In general, ad promotes competition, which benefits the consumer.
9
11
44
19
18
4
3.35
1.15
10
11
26
35
21
5
3.17
1.06
17
5
31
26
27
6
2.93
1.15
From the Table 13, it is evident that in general, the public believes that to an extent, advertising promotes competition which benefits the consumers and that it helps in strengthening our nation's economy. However, consumers also believe that advertising results in the wastage of economic resources and that it does not help in lowering prices. Thus, the above analysis brings out that the public finds advertising as a valuable source of information. They think that advertising benefits the consumer by promoting competition and resulting in better quality of products. They do not concur that advertising results in the lower prices.
similar to mine are buying and using Statement 17: Ad helps me to know which product will or will not reflect the sort of person I am. The Table 15 shows the responses of the respondents regarding the statements relating to the social role of advertising. Thus, the public feels that advertising helps in Table 16 The Results of t-test
Table 14 The Results of t-test Means Means Females
t-stat
Males
Females
3.18
Males
3.05
3.94 1.08
t-stat
t-critical
0.06
1.98
t-critical
1.98
3.85
At the same time, however, they do not find it wasteful of the economic resources. Rather they strongly feel that advertising helps our nation's economy. Since the calculated value of 't' is less than the crucial value at 5%, the null hypothesis is accepted. Table 14 shows that the perception of both the males and the females is the same for the above mentioned results.
raising standards. They learn about fashion, better products and about the products which match the personality of each individual. Since the calculated value of 't' is less than the crucial value at 5%, the null hypothesis is accepted. Table 16 shows that the perception of both the males and the females is the same for the above mentioned results. Inference: The perception of both males and females is the same for the above shown results in the table.
Inference: There is no difference in the perception of both the males and the females towards the economic effects of advertising.
Information Provided Through Advertising:
Social Role And Image :
8. Null Hypothesis: There is no difference in the attitudes of males and females towards social role and image of advertising.
7. Null Hypothesis: There is no difference in the attitude of the males and the females towards the social role and the image of advertising. Statement 7: From ad, I learnt about fashions and about what I buy to impress others
Table 17 shows the responses of the respondents regarding the statements relating to the information provided through advertising. Statement 2 : Ad is a valuable source of information about the local sales.
Young Consumers’ Attitude Towards Advertising : A Study —Komal Nagar
12 Table 17 Information Provided Through Advertising Statement SA A NA/ND D
SD mean
S.D.
2
31 39
20
6
2
3.92
0.97
12
17 63
10
6
2
3.92
0.97
22
20 52
14
6
2
3.71
1.16
Statement12: Ad tells me which brands have the features I am looking for. Statement 22: Ad helps me keep up-to-date about the products/services available in the market. The Results from the Table 17 show that Ad is a valuable source of information about local sales and it tells us about Table 18 The Results of t-test Means Females
3.87
Males
3.79
t-stat
1.45
t-critical
1.98
which brands have the features one is looking for. Consumers also believe that advertisements help in keeping up-to-date about the products/services available in the market. Since the calculated value of 't' is less than the crucial value at 5%, the null hypothesis is accepted. The Table 18 shows that the perception of both the males and the females is the same for the above mentioned results. Inference: The perception of both the males and the females about the information provided by the advertisements as shown in the above table is the same. Findings of the Study: The analysis of the data has been made considering several dimensions of attitude towards advertising. They are (1) general attitude towards advertising (2) Use of sex in advertising (3) Promotion of materialism through advertising (4) Pleasure in advertising (5) Ethics in advertising (6) Economic effects of advertising (7) Social role and image (8) Information provided through advertising. The findings of the present study have been based on the opinions of the young male and female respondents towards advertising in general. The following are the findings of the study. — From the findings it is revealed that the young, the male and the female consumers believe that advertising is very essential and it is a good thing. — It has also been found that although advertising has been
criticized for various reasons including the use of sex in ads, yet the young consumers do not believe that there is an excessive use of sex in ads these days. — Further investigation reveales that consumers are of the opinion that advertising promotes materialism as it makes people buy the things they do not really need. A majority of the respondents feel that they are becoming a more materialistic society due to advertising. — Although it is believed that the purpose of ads is not to entertain but to inform, yet young consumers believe that ads are entertaining and enjoyable. — The analysis of the data also revealed that consumers do not think ads to be unethical in general and they also do not think that advertised products are bad for the society. — The general public belief is that, to an extent, advertising promotes competition which benefits the consumers and that it helps in strengthening the nation's economy. — The responses of the young consumers towards the social role and image revealed that advertising helps in raising the standard of living. It helps the young generation to learn about the fashion and about the products that match their personality. — Finally, the results of the study revealed that advertisements are a valuable source of information about local sales and it tells us which brands have the features one is looking for. It is also believed that ads help in keeping us up-to-date about products/services available in the market. Suggestions : — In an age of advertising clutter where the consumers are exposed to ads in all kinds of media, it becomes essential for advertisers to differentiate their messages to catch the attention of the consumers. A lot of improvements needs to be done to break away from the traditional methods of advertising. — Advertisements have a youthful and fresh appeal. They should not only inform, but should also entertain, so that people enjoy watching it. — The younger generation forms a big segment of the prospective buyers of goods and services these days. Therefore, it is important for the marketers to address the concerns of this segment and try to develop the ads that carry an appeal to this segment of consumers. Conclusion: Some viewers will see advertising as saving their time by informing them about the products and services (Heyder, Musiol and Peters, 1992) and will invest time by watching the advertisements, with the aim of reducing the future research time. Others may have negative attitudes towards advertising
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
(Reid and Soley, 1982) and see watching ads as a waste of time (Speck and Elliott, 1997). A person's attitude towards advertising is “a learned predisposition to respond in a consistently favorable or unfavorable manner to advertising in general” (Lutz, 1985). An attitude can be regarded as having two components, beliefs about the topic combined with an evaluative factor (Lutz, 1985; Muehling, 1987). A belief about advertising would be that “advertising lowers prices”, whereas an attitude is a summary evaluation, “advertising is a good/bad thing” (Pollay and Mittal, 1993). Future Research: As markets get more and more competitive, and the new ways of advertising they provide an edge to brands to get noticed. Therefore, the attitude towards ads gets translated into the attitude towards the brand. The present research work has focused on the study of the attitude of the youth towards adverting in general. Although the younger population in India is increasing and so is their spending power, yet the present study can be expanded to include the opinion and attitude of other age groups and the future research can compare and contrast the reasons for the difference in the attitude (if any) among different age groups. The future research may be taken up to understand if certain types of ads (eg humorous ads etc) are more effective in generating positive attitudes in comparison with other kinds of ads. Also, the study can be taken forward by studying the role of media (eg. Television, Web, Print etc) in affecting the attitudes towards the advertising. References: Alwitt, L.F. and Prabhaker, P.R. (1994), “Identifying Who Dislikes Television Advertising: Not by Demographics Alone,” Journal of Advertising Research, 34(6), 17-29. Bogart, L. (1985), “War of the Words: Advertising in the Year 2010,” Communication Research6, 9-36. Cox, Donald F. (1962), “The Measurement of Information Value,” In Emerging Concepts in Marketing, New York: American Marketing Association, 413-421. Ducoffe, R.H. (1995), “How Consumers Assess the Value of Advertising,” Journal of Current Issues and Research in Advertising, 17, 1-18. Heyder, Hans, Karl Georg Musiol and Klaus Peters (1992), “Advertising in Europe- Attitude towards Advertising in certain East and West European Countries,” Marketing and Research Today, 20(1), 58-67. Lutz, Richard J. (1985), “Affective and Cognitive Antecedents of Attitude Towards the Ad: A Conceptual Framework,” In Psychological Processes and Advertising Effects: Theory, Research and Application, L.F. Alwitt and A.A. Mitchell, eds. Hillsdale, NJ: Lawrence Erlbaum
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Associates. Muehling, Darrel D. (1987), “An Investigation of Factors Underlying Attitude-Towards-Advertising-in-General,” Journal of Advertising, 16(1), 32-40. Myers, Jack (1993), Ad Bashing: Surviving the Attacks on Advertising, Parsippany, NJ: American Media Council. Nelson, Phillip (1970), “Information and Consumer Behavior,” Journal of Political Economy, 78(MarchApril), 311-329. Pollay, Richard W. and Banwari Mittal (1993), “Here's the Beef: Factors, Determinants and Segments in Consumer Criticism of Advertising,” Journal of Marketing, 57(3), 99114. Ratchford, Brain T. (1980), “The Value of Information for Selected Appliances,” Journal of Marketing Research, 27(February), 14-25. Reid, Leonard N and Lawrence C. Soley (1982), “Generalized and Personalized Attitudes toward Advertising's Social and Economic Effects,” Journal of Advertising, 11(3), 3-7. Speck, Paul Surgi and Michael T. Elliott (1997), “Predictors of Advertising Avoidance in Print and Broadcast Media,” Journal of Advertising, 25(1), 78-90. Stigler, George (1961), “The Economics of Information,” Journal of Political Economy, 69(June), 213-225. Zanot,E.(1981), “Public Attitudes Toward Advertising,” In H.Keith Hount (Ed.), Advertising in a New Age,. Provo, Utah: American Academy of Advertising.
Young Consumers’ Attitude Towards Advertising : A Study —Komal Nagar
14
Appendix For each of the following statements, choose the suitable level of agreement/disagreement measured as:1-Strongly Disagree, 2-Disagree, 3-Neither agree nor Disagree, 4-Agree, 5-Strongly Agree Gender
Age ( in years)
Educational Qualification 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Occupation Income per month (Rs)
Advertisement is essential. Advertisement is a valuable source of information about local sales. In general advertisement is misleading. Quite often advertisement is amusing and entertaining. Advertisement persuades people to buy things they should not buy. Most advertisements insult the intelligence of the average consumer. From advertising I learn about fashions and about what to buy to impress others. Advertising helps raise our standard of living. Advertising results in better products for the public. Advertising helps me to decide to know what people with lifestyles similar to mine are buying and using. Advertising is making us a materialistic society, overly interested in buying and owning things. Advertising tells me which brands have the features I am looking for. Advertising promotes undesirable values in our society. Sometimes I take pleasure in thinking about what I saw or heard or read in advertisements Advertisements make people buy the unaffordable products just to show off. In general, advertisement results in the lower prices. Advertisements help me to know which product will or will not reflect the sort of person I am. In general, advertisements present the true picture of the product advertised Sometimes advertisements are even more enjoyable than other media contents. In general, advertising helps our nation's economy. Most advertising distorts the value of our youth. Advertising helps me keep up to date about products/services available in the market place. Mostly, advertising is wasteful of economic resources. Overall, I consider advertising a good thing. Advertising makes people live in the world of fantasy. There is too much sex in the advertisements today. Because of advertising, people buy a lot of things they do not really need. My general opinion of advertising is unfavorable. In general, advertising promotes competition, which benefits the consumer. Some products/services promoted in advertising are bad for our society.
1 1 1 1 1 1 1 1 1 1
2 2 2 2 2 2 2 2 2 2
3 3 3 3 3 3 3 3 3 3
4 4 4 4 4 4 4 4 4 4
5 5 5 5 5 5 5 5 5 5
1
2
3
4
5
1 1 1
2 2 2
3 3 3
4 4 4
5 5 5
1 1 1
2 2 2
3 3 3
4 4 4
5 5 5
1 1 1 1 1
2 2 2 2 2
3 3 3 3 3
4 4 4 4 4
5 5 5 5 5
1 1 1 1 1 1 1 1
2 2 2 2 2 2 2 2
3 3 3 3 3 3 3 3
4 4 4 4 4 4 4 4
5 5 5 5 5 5 5 5
ISSN No. : 0974-0597
Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
“BASEL II What it means to Indian Banks” Prakash Singh1
A bstract: This paper aims at covering all aspects of Basel II viz. The emergence of risk management practices in Banking sector, Basel I, necessity of Basel II and the shortfalls of Basel I. The paper also seeks to examine the additional capital requirement of Indian PSU Banks and level of preparedness of selected Indian PSU Banks.
Introduction The Basel Committee on Banking Supervision was established as the Committee on Banking Regulations and Supervisory Practices by the central-bank Governors of the Group of Ten countries at the end of 1974 in the aftermath of the serious disturbances in international currency and banking markets (notably the failure of Bankhaus Herstatt in West Germany). The first meeting took place in February 1975 and the successive meetings were held regularly three or four times a year since then. The Basel Supervisors' Committee endorsed Basel I in 1988. The primary goals of the accord were (a) to make regulatory capital more sensitive to risk (b) factor off balance sheet exposures into the assessment of capital adequacy (c) minimize disincentives to holding liquid, low risk assets and (d) achieve greater international consistency in evaluating capital adequacy. The risk weighted amount is defined as the amount of asset multiplied by specified risk weight assigned. The accord suggested risk weights for varying classes of assets; cash and certain government claims (0%), claims on banks (20%), residential mortgages (50%), other claims (100%) and low rated asset backed securities (200 %). Off balance sheet exposures are converted into credit equivalent amounts and risk weighted. In 1996, the Basel I framework was revised to incorporate measure for market risk. The measure uses bank internal models to generate capital charges for general market and specific risk. Later in 2005, the Committee issued amendments to the market risk measures.
1. Area Chair- Finance & Accounting Area, Indian Institute of Management, Lucknow, Prabandh Nagar, Off Sitapur Road Lucknow, UP-226013 E-mail :
[email protected]
The Basel I framework achieved certain notable strengths viz. (a) regulatory capital definition was clearly defined. (b) it was a relatively simple structure (c) increased the capital ratios of internationally active banks and (d) required capital for offbalance sheet exposures. The accord enhanced competitive equity and enabled comparability of banks' capital positions across countries. However, the Basel I Accord had certain weaknesses. Prominent of these were (a) it adopted broad brush risk weighing structure which was not aligned with actual risks faced (b) provide opportunities for regulatory capital arbitrage which facilitated retaining risky assets and removing lower risk assets (c) accord covered only credit and market risks and (d) accord adopted opaque distinction of OECD/non-OECD for risk weight age
Basel II What it means ti Indian Banks — Prakash Singh
16 Necessity of Basel II: — The main incentives for adoption of Basel II are (a) it is more risk sensitive; (b) it recognises developments in risk measurement and risk management techniques employed in the banking sector and accommodates them within the framework; and (c) it aligns regulatory capital closer to economic capital. These elements of Basel II take the regulatory framework closer to the business models employed in several large banks. In Basel II framework, banks' capital requirements are more closely aligned with the underlying risks in the balance sheet. Basel II compliant banks can also achieve better capital efficiency as identification, measurement and management of credit, market and operational risks have a direct bearing on regulatory capital relief. Operational risk management would result in continuous review of systems and control mechanisms. The capital charge for better managed risks is lower and the banks adopting risk-based pricing are able to offer a better price (interest rate) for better risks. — Basel I does not reflect credit quality gradations or deterioration in the asset quality. Lumping everything from a Triple-A-rated corporate bond to junk bonds in the same Basel I category helped “capital arbitrage” banks exploiting differences between regulatory and economic capital. Furthermore, there is no explicit capital requirement to account for the operational risk embedded in the many services from which firms generate much of their revenues. Basel I does not give the supervisors a common framework to engage with banks on other important issues, like strategic risk. Basel II closes the gap. It better aligns capital requirements and the way banks manage their actual risk. — Pillar 1 of Basel II is based on many of the economic capital practices of banks. It brings minimum regulatory capital closer to the capital generated by banks' internal models. By providing a consistent framework for banks to calculate minimum regulatory capital, supervisors will be
Basel 1
better able to identify portfolios and banks where capital is not commensurate with inherent risk levels. It also gives a more conceptually consistent and transparent framework for evaluating systemic risk in the banking system through the credit cycle. — On going and regular dialogue with supervisors under Pillar 2 is an important improvement. This will inform management about how proprietary risk measurement and management models compare with current practices. And where enhancements are needed. It will help firms to improve their internal risk governance by better capital management. — The added transparency in Pillar 3 should also generate an improved market discipline for banks, in some cases forcing them to run a better business. Indeed, market participants play a useful role by requiring banks to hold more capital than implied by minimum regulatory capital requirements or sometimes their own economic capital models - and by demanding additional disclosures about how risks are being identified, measured, and managed. A strong understanding by the market of pillars 1 and 2 would make Pillar 3 more comprehensible and market discipline a more reliable tool for supervisors and the market. Three Pillars Of Basel II : Pillar 1: Capital Adequacy: Under Pillar 1, commercial banks are required to compute the individual capital adequacy for three categories of risks (i.e., credit risk, market risk and operational risk) broadly under two sets of approaches standardised and advanced. As in the current accord, the new accord will have the same provisions relating to the regulatory capital requirement: 8%. However, the difference is in the method of calculating bank risk, which would, in turn, affect capital requirement.
Advantages of Basel II over Basel I Proposed new Accord or Basel II
Focus on a single risk measure, primarily on credit risk. Doesn't cover operation risk
More emphasis on banks' own internal methodologies, supervisory review, and market discipline
One size fits all
Flexibility, menu of approaches, incentives for better risk management
Broad structure
More risk sensitivity
Uses arbitrary risk categories & risk weights
Risk weights linked to external ratings assigned by ECAI or IRB by bank
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
The regulatory Capital / Risk weighted assets > 8% Risk weighted assets = {Capital requirements for Market Risk + Capital requirements for Operational Risk}* 12.5 + (Risk weighted assets for credit risk) Capital Charge for the Credit Risk: Basel II marks a break from Basel I in the case of credit risk in that the loans to the similar counterparts such as private firms, sovereigns etc. require different capital coverage, depending upon their riskiness as evaluated by some external rating agency, or by the bank itself. Basel II proposes a range of approaches to credit risk. The simplest methodology is the standardised approach which aligns the regulatory capital requirements more closely with the key elements of banking risk by introducing a wider differentiation of risk weights and a wider recognition of credit risk mitigation techniques, while avoiding the excessive complexity. In this method, risk weights are defined for certain types of credit exposures primarily on the basis of credit assessments provided by rating agencies. The default risk as reflected in the credit rating is then translated into the resulting capital requirements. Under the internal rating based (IRB) approach, the banks that have received the supervisory approval, arrive at their own internal estimates of risk components in determining the capital requirement for a given exposure. The risk components include measures of the probability of default (PD) the probability that the counterparty will default within one year, loss given default (LGD) the amount of the loss expressed as a percentage of the amount outstanding at the time when the counterparty defaults, the exposure at default (EAD) the credit amount outstanding at the time of default, and effective maturity (M). In some cases, banks may be required to use a supervisory value as opposed to an internal estimate for one or more of the risk components.
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standards prescribed and include methods such as internal measurement approach (IMA), loss distribution approach (LDA), the scenario based, and the scorecard). The basic indicator approach (for the calculation of minimum capital requirements) is the simplest method of quantifying operational risks. In this approach, a risk weight of 15 per cent is applied to a single indicator, specifically the average gross income (i.e., the sum of net interest income and net noninterest income) over the previous three years. The advantage of applying the basic indicator approach primarily lies in its simplicity. However, there is no immediate causal relationship between the bank's operational risks and its operating income. In order to come to a better assessment of the risk profile, it is advisable not to rely on the basic indicator approach alone to capture risks. For instance, a more specific calculation of a bank's risk situation can be performed by means of a systematic internal survey of realized operational risks using a loss database. While Basel II is an international framework based on the shared regulatory objectives, it is subject to country-specific implementation. Therefore, a country has the discretion to use multiple risk-based capital regimes depending on the banking organisation's size and complexity. Since the international accord was issued in 2004, the individual countries have been implementing national rules based on the principles and detailed framework that it sets forth, and each country has used some measure of national discretion within its jurisdiction. The Basel Committee noted that as a result, regulators from different countries would need to make substantial efforts to ensure sufficient consistency in the application of the framework across jurisdictions. Furthermore, the Basel Committee emphasized that the international accord set forth only minimum requirements, which countries may choose to supplement with added measures to address such concerns as potential uncertainties about the accuracy of the capital rule's risk measurement approaches. Market Risk:
Capital Charge for an Operational Risk : Various methods can be used to assess the operational risks. The Basel II framework has given guidance to three broad methods of capital calculation for the operational risk basic indicator approach (which is based on annual revenue of the financial institution), the standardised approach (which is based on annual revenue of each of the broad business lines of the financial institution) and advanced measurement approaches (which are based on the internally the developed risk measurement framework of the bank adhering to the
— The standardized approach which specifies the standards in five categories 1. Interest Rate risk 2. Equity Position Risk 3. Foreign Exchange risk 4. Commodities Risk 5. Options risk — The second approach to deal in the market risk is based on the internal assessments of the banks. The bank needs to
Basic Indicator
Standardized
Advanced Measurement
Capital Charge = 15% of the three years average gross income
Capital Charge = 12%-18% of the gross income per regulatory business line
Capital Charge = Internally generated data on internal & external loss data, Scenario analysis business environment & internal Control
Basel II What it means ti Indian Banks — Prakash Singh
18 consider the following five elements in calculating the internal model based risk structure. 1. General criteria, where the approval from the supervisory authority of the bank is mandatory. 2. Qualitative standards regarding the maintenance of the Risk management unit 3. Specification of Market Risk Factors 4. Quantitative standards 5. Stress testing to identify the events that could impact the banks. 6. External Validation by External auditors and Supervisory authorities Pillar 2: Supervisory Review: On the one hand, Pillar 2 (Supervisory Review Process) requires banks to implement an internal process for assessing their capital adequacy in relation to their risk profiles as well as a strategy for maintaining their capital levels, i.e., the Internal Capital Adequacy Assessment Process (ICAAP). On the other hand, Pillar 2 also requires the supervisory authorities to subject all banks to an evaluation process and to impose any necessary supervisory measures based on the evaluations. The Basel Committee has defined the following four basic principles for the supervisory review process: Principle 1: Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels. Principle 2: The Supervisors should review and evaluate the banks' internal capital adequacy assessments and strategies, as well as their ability to monitor and ensure their compliance with regulatory capital ratios. The supervisors should take an appropriate supervisory action if they are not satisfied with the result of this process. Principle 3: The supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to require the banks to hold capital in excess of the minimum. Principle 4: The supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular bank and should require rapid remedial action if capital is not maintained or restored. Pillar 3: Market Discipline: Theoretically, the regulation aimed at creating and sustaining competition among banks, notably through increased transparency, is believed to play an important role in mitigating bank solvency problems. Market discipline in the banking sector can be described as private counterparty supervision that has always been the first line of regulatory defence in protecting the safety and soundness of the banking system (Greenspan, 2001). Their contention is that these standards have increased transparency, thereby enabling
financial markets to 'punish' poorly capitalized banks and rewarding banking systems with higher capital levels. Banks with higher capital ratios may be able to access the capital market for raising resources, which, in turn, allow banks to maintain higher capital levels. The purpose of market discipline (detailed in Pillar 3) in the revised framework is to complement the minimum capital requirements (detailed under Pillar 1) and the supervisory review process (detailed under Pillar 2). The aim is to encourage market discipline by developing a set of disclosure requirements which will allow market participants to assess key pieces of information on the scope of application, capital, risk exposures, risk assessment processes, and hence the capital adequacy of the institution. In principle, banks' disclosures should be consistent with how senior management and the board of directors assess and manage the risks of the bank. Non-compliance with the prescribed disclosure requirements would attract a penalty, including financial penalty. However, the direct additional capital requirements rarely serve as a response to non-disclosure, except in certain cases. In addition to the general intervention measures, the revised framework also anticipates a role for specific measures. Where disclosure is a qualifying criterion under Pillar 1 to obtain lower risk weights and/or to apply the specific methodologies, there would be a direct sanction (not being allowed to apply the lower risk weighting or the specific methodology). The Effect of the Recent Financial Turmoil on Basel II: The financial turmoil that occurred in mid-2007 widely known as the sub-prime crisis - has affected the balance sheets of some major global financial institutions and has also resulted in market liquidity crisis. This turmoil was a fallout of an exceptional credit boom and leverage in the financial system. A long period of consistent economic growth and stable financial conditions had resulted in increased risk appetite of borrowers as well as investors. Financial institutions responded by expanding the market for securitisation of credit risk and aggressively developing the originate-to-distribute model for financial intermediation. A slowdown in the US real estate market triggered a series of defaults and this snowballed into accumulated losses, especially in the case of complex structured securities. The build-up to and unfolding of the financial turmoil took place under the Basel I capital framework as most of the countries have started implementation of Basel II framework only recently. This financial turmoil has, in fact, highlighted many of the shortcomings of the Basel I framework, including its lack of risk sensitivity and its inflexibility to rapid innovations. Basel I created perverse regulatory incentives to move exposures off the balance sheet and did not fully capture important elements of bank's risk exposure within the capital adequacy calculation. In contrast, the Basel II framework has provision for better risk management practices by closely
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
aligning the minimum capital requirements with the risks that banks face (Pillar 1), by strengthening supervisory review of bank practices (Pillar 2) and by encouraging improved market disclosure (Pillar 3). Notwithstanding the improvements over the Basel I framework, the current Basel II framework still has certain deficiencies if evaluated in the light of current financial turmoil. Under the first pillar, a relook at the treatment of highly rated securitisation exposures, especially the so called collateralised debt obligations (CDOs) of asset backed securities (ABS) is necessary. The role of this securitisation process in the current turmoil and its leverage capacity and their systemic implications have come under intense scrutiny in recent times. There is a pressing need to introduce a credit default risk charge for the trading book given the rapid growth of less liquid, credit sensitive products in banks' trading books. These products include structured credit assets and leveraged lending and the VaR-based approach is insufficient for these types of exposures and needs to be supplemented with a default risk charge. Though banks are already required to conduct stress tests of their credit portfolio under the second pillar of the Basel framework to validate the adequacy of their capital cushions, the importance of conducting scenario analyses and stress tests of their contingent credit exposures, both contractual and non-contractual, need to be reemphasized. In Pillar 3, there are opportunities to further the leverage off the types of disclosures required under Basel II. Against this backdrop, several measures have been suggested for mitigating the impact and improving the global financial system. The most noteworthy among these are the proposals made by the Financial Stability Forum (FSF) 1 and ratified in early April 2008 by the G-7 to be implemented over the next 100 days. By the mid-2008, the Basel Committee was expected to issue revised liquidity risk management guidelines and IOSCO was expected to revise its code of conduct for credit rating agencies. By end-2008 or at the latest by 2009, the BCBS was expected to revise capital requirements under Pillar 1 of Basel II (for instance, certain aspects of the securitisation framework), strengthening supervision and management of liquidity risk for banks, ensuring effective supervisory review under Pillar 2, enhancing transparency and valuation, improving the quality of credit ratings for structured products, strengthening authorities' responsiveness to risk and enhancing robust arrangements for dealing with stress in the financial system. Role of Rating Agencies: Under the standardized approach for the credit risk adopted in India, the external rating assessment of portfolio has to play an important role. In view of the limited penetration of ratings and the absence of reliable ratings for different assets, the Indian banking industry will not be able to fully exploit the flexibility of Basel II. The role of rating agencies has also come under scrutiny in the recent sub-prime mortgage loan crisis. Some confusion surrounding the actual scope of the
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rating has also arisen. While rating agencies consider themselves responsible only for assessing credit risk, many fund managers, in particular short term investment funds, might expect that ratings would cover all the risks (notably liquidity risk) that weigh on their investments. The second source of misunderstanding stems from the metric used by the rating agencies for rating structured products, which is identical, in terms of presentation, to that used for traditional bond products. The consequences of assigning an AAA rating to a CDO and to a corporate bond are not the same. The potential volatility of an AAA rating for a structured product, in particular, is far greater than that for a traditional product (for a shock, all other things are equal, of the same magnitude). Structured products are built on correlations and leverage. If one of the riskier tranches is affected by a default, the value (and the rating) of the other tranches will also be affected by contagion, through the decrease in their subordination level. Keeping these in view, in future, the possible improvements could be considered in three areas, among others. First, there should be a greater transparency of the rating methods and the overall role of rating agencies in the securitisation process. Second, a marked difference should be instituted in the metric used for the rating bonds and structured products, in order to distinguish the significance of ratings, either by adopting another rating scale for structured products (with another symbol for example) or by including an additional measure in the credit rating, in particular on its volatility in times of market or liquidity stress. Furthermore, a specific rating for liquidity risk also needs to be explored, although there are difficulties in such an exercise. The issues have also been raised about potential conflicts of interest in the activities of rating agencies as they are paid by the same entities which they rate. Therefore, there is need to change the incentive structure of rating agencies. The Challenges: First, the new norms might, in some cases, lead to an increase in the overall regulatory capital requirements for the banks, particularly under the simpler approaches adopted in India, if the additional capital required for the operational risk is not offset by the capital relief available for the credit risk. This would of course depend upon the risk profile of the banks' portfolios and also provide an incentive for better risk management but the banks would need to be prepared to augment their capital through strategic capital planning. Second, the Standardized Approach for credit risk leans heavily on the external credit ratings. While the RBI has accredited four rating agencies operating in India, the rating penetration in India is rather low. Moreover, credit rating in India is confined to rating of the instruments and not of the issuing entities as a whole. Besides, the credit rating provides only a lagged indicator of the credit standing of an entity, and is not a lead indicator. The banks would, therefore, need to actively reckon this aspect in their ICAAP exercise.
20 Third, the risk weighting scheme under Standardised Approach also creates some incentive for Some of the bank clients to remain unrated since such entities receive a lower risk weight of 100 per cent vis-à-vis 150 per cent risk weight for a lowest rated client. This might specially be the case if the unrated client expects a poor rating. The banks will need to be watchful in this regard. Fourth, the new framework could also intensify the competition for the best clients with high credit ratings, which attract lower capital charge. This could put pressure on the margins of the bank. The banks would, therefore, need to streamline and reorient their client acquisition and retention strategy. Finally, implementing the ICAAP under the Pillar 2 of the framework would perhaps be the biggest challenge for the banks in India as it requires a comprehensive risk modeling infrastructure to capture all the risks that are not covered under the other two Pillars of the framework. The validation of the internal models of the banks by the supervisors would also be an arduous task. In regard to adoption of advanced approaches available under Basel II, the RBI has not stipulated any timeframe for adoption of these approaches but a migration to advanced approaches would certainly pose significant challenges to both the banks as well as the supervisors. In this case, a slightly different set of issues and challenges is likely to arise which would need to be kept in view in any decision to migrate to them. First and foremost, the banks will need to demonstrate to the supervisors that they meet the minimum criteria stipulated in the Basel II framework to be eligible to adopt the IRB approaches. This could require, inter alia, suitable adjustments in the risk-rating design and its operations for various product lines in the banks and also the governance structure to ensure the integrity of the rating process. Second, unlike the simpler approaches under Basel II, the advanced approaches are very data intensive and require high-quality, consistent, time-series data for various borrower and facility categories for a period of five to seven years to enable computation of the required risk parameters (such as default probability and loss given default, etc.). The banks would perhaps need a thorough review of their internal processes with a view to redesign and upgrade them to be able to capture the information needed for creating the requisite databases. Third, robust risk management architecture, including a strong stress-testing framework for scenario analyses, would be a necessity under the advanced approaches. A system within the banks to validate the accuracy of the internal rating processes would be an essential element of the risk management set up. Fourth, an overarching requirement for efficient data
Basel II What it means ti Indian Banks — Prakash Singh
management and for effective risk management structures, would be a state-of-the-art technological infrastructure which might need significant investment and improvement to achieve seamless enterprise-wide integrated risk management, for which sharply focused strategic planning would be necessary. Fifth, with considerable leeway available to the banks under the advanced approaches in determining the regulatory capital requirements, the highest standards of corporate governance would be critical for maintaining the integrity of the advanced approaches. Sixth, the complexity of advanced approaches requires highly skilled staff and the human resource management in the banking industry, particularly for the public sector banks, could emerge to be a binding constraint, in adopting advanced approaches. This would need innovative strategies and concerted efforts on the part of the banks to be able to attract and retain the right mix of talent in the organization. Finally, the advanced approaches would also cast an onerous responsibility on the supervisors of not only guiding the banking system through the implementation phase but also of validating the internal models, system and processes adopted by the regulated banks. This, needless to say, would require considerable capacity building and augmentation of the domain knowledge and expertise of the supervisors themselves to ensure a non-disruptive migration to the advanced approaches under Basel II. Let me hasten to assure all of you that we, in the RBI, are quite live to the issue and strategic interventions have already been planned in this regard. Implementation of Basel II Accord in India: Though the Indian banks became fully compliant with Basel I Accord in March 2005, the RBI had initiated preparatory measures even prior to that. In August 2004, soon after the new framework was released by the BCBS, the banks were advised to conduct a self-assessment of their risk management systems and to initiate remedial measures, as needed, keeping in view the requirements of the Basel II framework. Further, to secure a consultative and participative approach for a non-disruptive migration to Basel II, a Steering Committee was constituted in October 2004, comprising the senior officials from 14 select banks (a mix of public sector, private sector and foreign banks). It formed several sub-groups to address specific issues under Basel II and made its recommendations to the Reserve Bank. Based on these inputs, in February, 2005, the RBI issued the draft guidelines, for public comments, on implementation of Pillar 1 and Pillar 3 requirements of the Basel II framework. In the light of the feedback received from a wide spectrum of banks and other stake holders, the draft guidelines were revised and again placed in public domain on March 20, 2007 for a second round of consultations. Keeping in view the additional feedback received, the guidelines were finalized and issued on April 27, 2007. As regards the Pillar 2, the banks
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
have been asked to put in place the requisite Internal Capital Adequacy Assessment Process (ICAAP) with the approval of their Boards. Even before the final guidelines were issued, the RBI had asked the banks in May 2006 to begin conducting parallel runs, as per the draft guidelines, so as to familiarize them with the requirements of the new framework. During the period of parallel run, the banks are required to compute, parallel, on an ongoing basis, their capital adequacy ratio both under the Basel I norms, currently applicable, as well as the Basel II guidelines to be applicable in future. This analysis, along with several other prescribed assessments, is to be placed before the Boards of the banks every quarter and is also transmitted to the RBI. These reports received in the RBI indicate that implementation of Basel II in the banks is in the process of getting stabilized. The minimum capital adequacy ratio prescribed under the Basel II norms continues to be at nine per cent, at solo as well as consolidated level. This, however, is subject to the stipulated prudential floors for the first three years of implementation to guard against any significant decline in the capital ratios of the banks arising from the capital relief that they might accrue to them under Basel II. The banks are, however, expected to operate at a level well above the minimum capital requirement. The banks are also required to achieve the Tier I capital ratio of six per cent not later than March 31, 2010, both on solo as well as consolidated basis. A two-stage implementation of the guidelines is envisaged to provide adequate lead time to the banking system. Accordingly, the foreign banks operating in India and the Indian banks having operational presence outside India were required to migrate to the Standardized Approach for credit risk and the Basic Indicator Approach for operational risk with effect from March 31, 2008. All other Scheduled commercial banks were encouraged to migrate to these approaches under Basel II in alignment with them, but, in any case, not later than March 31, 2009. It has been a conscious decision to begin with the simpler approaches available under the framework. As regards the market risk, the banks will continue to follow the Standardized-Duration Method, already adopted under the Basel I framework, under Basel II also. Thus, reckoning the well-planned and carefully-sequenced preparatory work already done, the choices exercised by the RBI under the national discretion, coupled with a phased implementation schedule, The Indian banking system could be considered to be in a high state of preparedness and would be well poised for a seamless migration to Basel II this year, in tune with the envisaged timeframe. Additional Capital Requirement of the Indian PSU Banks In 1992, the capital levels of the Indian PSU Banks were very low. In order to enable these banks meet CRAR requirement, government infused a capital of Rs.22, 092
21
crore. The Government also allowed PSBs to approach capital market directly subject to 51 % public ownership. A few PSBs returned an amount aggregating Rs.1, 789 crores during this period. The scheduled commercial banks have raised Rs.34, 679 crores from the capital market since 199394. As a result, the equity holding of the Government has got diluted; in three public sector banks (Oriental Bank of Commerce, Dena Bank and Andhra Bank), the government holding was close to 51 %. Besides, the banks also raised resources by way of subordinated debt (Tier II), which increased from Rs.18, 482 crore (Mar 03) to Rs.63, 814 crore (Mar 2007). A reserve generated by banks has also increased substantially. The risk weighted assets grew at an average annual rate of 22.4% (during Mar 1997 to Mar 2007), nearly three times between Mar 2003 to Mar 2007 on the back of credit expansion and application of market risk norms. The details are as under: The CRAR, in general has remained significantly above the minimum prescribed level as banks have managed their capital requirements in an efficient way. However, the capital requirements are expected to increase with migration to the Basel II norms. It is generally believed that under the simpler approaches adopted in India, if the additional capital required under operational risk is not offset by the capital relief under credit risk, the overall regulatory requirement for banks would go up. Further, with the adoption of standardized approach for credit risk under Basel II is not likely to be different from the Basel I norms as most of the banks customers still do not possess an external rating, in which case the risk weight of 100 % would be applied. Estimates of the capital requirement : One of the widely discussed issues under Basel II is about the ability of public sector banks to meet the growing capital requirements. The issue assumes importance as the shareholding of the Government in public sector banks cannot go below 51 %. RBI has estimated the capital requirements over the five year period from 2007-08 to 2011-12 for the banking sector. We have furnished the details pertaining to PSU Banks. The estimate is based on the following factors: — Implementation of Basel II leading to refined measurement of credit risk and an additional operational risk — Likely growth in bank's balance sheet. — GDP growth rate has been considered at 9 %. M3 is estimated to grow at 18.5 %. — Inflation rate assumed at 5%. — Risk weighted assets for credit risk and market risk are enhanced by including risk weighted assets on account of operational risk. Based on Mar 2007 data, risk weighted assets to credit ratio was 1.4. The ratio has been applied to subsequent years to estimate risk weighted assets. — The market share of risk weighted assets for individual banks is arrived based on their individual share in total assets. The share is expected to remain unchanged during
Basel II What it means ti Indian Banks — Prakash Singh
22 the time frame. — The capital requirements have been worked out for minimum capital ratio of 12 % and a Tier I capital at 6 %. The estimate requires estimation of risk weighted assets. The details are as under:
1. 2. 3. 4. 5.
Bank of Maharashtra Canara Bank UCO Bank Dena Bank and Indian Bank
Bank of Maharashtra:
Assuming that banks would maintain CRAR of 12%, the total capital requirements for the banking sector are projected to go up to Rs.4,07,686 crores by end March 08 and Rs.8,64,935 crores at end Mar 2012. Thus the banking sector would require additional capital of Rs.5, 68,744 crores till end March 2012. Out of the above, the public sector banks would require Rs.3, 69,115 crores which is 64.9 % of total banking sector. Since the banks are maintaining Tier I capital significantly above the required level, Tier I capital requirements are required to increase to Rs.2, 33,564 crores during the period 2007-12 and the balance would have to come from Tier II. The Tier I capital requirements for public sector banks is estimated at Rs.1, 55,569 crores. As regards financing of capital requirements of PSU banks, the past trend has been that Tier I capital requirement was largely met by ploughing back of profits, while Tier II capital was raised through subordinated debt. Reserves accounted for 86% of Tier I capital in 2006-07. Hence, PSU banks can be expected to increase Tier I capital fund requirements largely through reserves. Hence, it is estimated that 40% of Tier I capital requirements are to be raised from sources other than growth in reserves over the next five years. Some banks have headroom (available to six banks) where the Government holding is above the minimum requirement of 51%. These banks are Punjab & Sind Bank, United Bank of India, Canara Bank, Bank of Maharashtra and UCO Bank which could access the market to the extent of Rs.5, 171 crores. As Banks are allowed to raise capital by way of innovative perpetual debt instruments (15 % of Tier I capital) and non-cumulative preference shares (40% of Tier I capital). Total headroom available under these instruments was Rs.33, 676 crores as at end March 07 to meet the gap. Level of Preparedness of Selected PSU Banks: We have selected 5 Indian PSU banks and analysed the risk management practices followed by them and the level of preparedness for the implementation of Basel II in line with RBI guidelines. These banks are:
Credit Risk The Bank has in place comprehensive Lending Policy and Loan Review Policy which prescribe instruments of Credit Risk Management. Various aspects of Credit Risk, like asset concentration, norms for industry exposure, prudential limits and various financial parameters, substantial exposure limits, standards for collaterals, and review of portfolio etc. are spelt out in the above policies in line with the Risk Management Policy prescriptions. The Bank has also set up Credit Approval Grids at various levels and at Treasury & International Banking Division (TIBD) Mumbai to obtain preliminary clearance on credit proposals from the risk perception view point. The Bank has put in place a comprehensive credit policy and internal credit rating system under which all the borrower accounts of Rs.2.00 lakh and above are rated on various parameters. The Bank has developed in-house Credit Risk Rating Framework (CRRF) comprising the risk rating models for existing as well as entry- level borrowers. The framework recognises the asset classes as desired under Basel II, like Corporate, Banks, specialized in lending, commercial Real Estate and Retail. In all, 22 risk rating models have been developed, back-tested on hold out samples, mapped with the external ratings and adopted by the Bank. The Bank has prescribed benchmark rating for entry-level exposure. The Bank has undertaken migration analysis of credit risk rating and estimated probability of default in line with Basel II requirements. The Bank has also undertaken portfolio reviews and industry studies to assess the risks lying in the credit portfolio and adopt strategies to improve credit quality and reduce the potential adverse impact of concentration of exposure to certain borrowers, sectors or industries. Policy on Stress testing has been put in place and reports on stress testing are placed before the appropriate authorities for periodical review.
2003
2004
2005
2006
2007
Tier 1 Capital
71,416
78,550
108,949
166,538
200,397
Tier II Capital
35,643
46,699
56,979
54,825
95,794
Total capital funds
107,059
125,249
165,928
221,363
296,191
Risk weighted assets
844,402
969,886
1,296,223
1,797,207
2,412,320
12.68
12.91
12.80
12.32
12.28
Particulars
Capital Adequacy Ratio (%)
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
Basel II Practice: The Bank is well prepared to adopt approaches prescribed by RBI for implementation of Basel II. The Bank has undertaken parallel run for assessing Capital Adequacy as per Basel-II norms since June 30, 2006. The Bank has also put in place the policies on Internal Capital Adequacy Assessment Process (ICAAP) & Mechanism for validating the CRAR Position, Utilization of Credit Risk Mitigation Techniques & Collateral Management and Disclosures, as compliance to requirements relevant under the Basel II Framework. The Bank has entered into a MOU with eligible External Credit Assessment Institutions (ECAIs) viz. CRISIL, CARE, ICRA and FITCH to facilitate the Bank's customers in the process of getting their accounts rated by any of the above agencies. Canara Bank: Risk Management Initiatives: The Bank has put in place a unified risk management architecture to move towards global best practices for effective implementation of risk management initiatives in conformity with the Basel II framework and RBI guidelines. The Board of Directors drives the Risk Management initiatives in the Bank. The Risk Management Committee of the Board is constituted and operational. Top Executive Committees for Credit Risk, Operational Risk and Market Risk management supervise and monitor the respective risk management processes and procedures. Asset Liability Committee (ALCO) meets periodically for effective and proactive ALM in the Bank. An exclusive Risk Management Wing at the Head office is functioning as a nodal point for overall implementation of various risk management initiatives across the Bank. Integrated Mid Office of both domestic as well as forex treasury is functioning under Risk Management Wing for effective and independent supervision and monitoring of market risk in investment and forex functions. Risk Management Sections are functioning in all the 30 Circle Offices of the Bank as extended arms of the Risk Management Wing at the Corporate Office. Migration to Basel II Norms: The Bank has computed Capital to Risk Weighted Assets Ratio (CRAR) at 31st March 2008, as per Pillar I requirement of Basel II norms, adhering to the New Capital Adequacy framework guidelines stipulated by the RBI. The Bank has framed policy on Internal Capital Adequacy Assessment Process (ICAAP) to meet the requirements of Pillar 2 of Basel II norms. The Bank has constituted a Capital Planning Committee to assess capital requirement of the Bank, ensure maintenance of appropriate level of CRAR and evaluate various options for raising capital. The Bank has adhered to the Disclosure norms as stipulated in the guidelines of RBI to meet Pillar 3 requirements of Basel II norms. The Bank
23
has framed a policy of Disclosures and formed a Disclosure Committee consisting of Top Executives to ensure adherence to the policy guidelines. Improvement in awareness of Basel II norms among staff is continuously being enhanced through training, periodical publications of Risk Management Wing, such as 'Risk Focus' and 'Industry Focus'. Knowledge and skill levels of core staff at Corporate Office assigned with the responsibility of implementation of Basel II norms are being constantly upgraded through participation in external trainings, workshops and seminars. UCO Bank: Risk Management Initiative: The organizational framework for Risk Management in the Bank comprises of Board of Directors and Risk Management Committee of the Board at the apex level. Risk Management Policies in the area of Credit Risk, Market Risk, and Operational Risk are articulated by the Board. The Bank has three executive committees viz., Credit Risk Management Committee, Asset Liability Management Committee and Committee for Operational Risk management which are entrusted with the responsibility of design and implementation of Risk management processes in the respective areas in accordance with the policies articulated by the Board. The decisions of these committees are reported to the Risk Management Committee of the Board. The decision / minutes of the Risk Management Committee of the Board are submitted to the Board of Directors. The Bank has put in place Risk Management Policy, Loan Policy and Asset Liability Management Policy duly approved by the Board of Directors. All functions relating to risk management are in accordance with these policy directives. In the matter of implementation of the Risk Management guidelines issued by the Reserve Bank of India, the Bank has reviewed its progress and also adopted item-wise action points including a time frame approved by the Board. Capital Planning Committee has been set up for Capital Management and Balance Sheet Planning Migration to Basel II Norms: The Bank has implemented the New Capital Adequacy Framework. The bank has adapted to Standardised Approach for Credit Risk and Basic Indicator Approach for Operational Risk under the Revised Framework with effect from March 31, 2008 in accordance with regulatory requirements. The Bank computes its Capital Adequacy Ratio (CRAR) both under the old and the revised guidelines on an ongoing basis. The Board is kept informed on the Impact of various elements /portfolios on the Bank's CRAB. The Bank has in place Board approved policy on utilization of the Credit Risk mitigation techniques and collateral management, on disclosures and on Internal Adequacy Assessment Process (ICAAP).
24 Dena Bank: Risk Management Practices: The Bank has put in place structured risk management systems & architecture that is overseen by a Committee of Directors on Integrated Risk Management. Management level Committees on Asset Liability (ALCO), Credit Risk Management and Operational Risk Management constitute the core level of focused risk management systems. The Bank has also identified Risk Managers at all controlling offices to focus on operational risk factors and arranged for their training. During the year, the Bank revised and updated its risk related Policies in line with the Basel II norms, changes in operating environment and with a view to manage credit and market risks in an effective manner. Business Continuity Plans have been formulated for all critical processes of the Bank. The Bank has also set up and operationalised Disaster Recovery Centre for its Core Banking Operations. MidOffice of the Bank was strengthened and its functions were made broad based further for an effective monitoring of market risk. A system of verification of the credit rating of borrowers was introduced and credit monitoring system was further streamlined for focused attention on improvement in asset quality. During the year, the Bank has entered into Memorandum of Understandings with the four major external credit rating agencies of the country (CARE, CRISIL, Fitch Ratings & ICRA) for facilitating the Bank's large unrated borrowers to get themselves rated. These MOUs provide for concessions in rating fees to be charged to the Bank's borrowers, particularly for SME sector. The Bank had also convened a meeting of its large unrated corporate borrowers in Mumbai wherein interaction between borrowers and the credit rating agencies was facilitated. Basel II Norms Compliance: The Bank has also taken adequate measures for being in readiness to embrace Basel II norms by March 2009. Quarterly parallel runs were carried out to assess the impact of Basel II norms on capital adequacy of the Bank. Based on the results of the parallel runs, the Bank is confident of compliance to the New Capital Adequacy Framework (Basel II). In order to facilitate continuing compliance to Basel II norms on enterprise wide basis, the Bank has procured and is in the process of implementing two software systems for Asset Liability Management and Risk Management as part of its Core Banking implementation. The Bank continued with the system of comprehensive risk profiling of the Bank in line with regulatory guidelines that will facilitate integrated risk management. Indian Bank: Risk Management Practices: The Bank has fully complied with the Reserve Bank of India
Basel II What it means ti Indian Banks — Prakash Singh
guidelines on the creation of necessary Risk Management Architecture and also the guidelines on Basel II. Capital adequacy computation has been done under Basel II requirements effective from 31.03.2008. The Bank has adopted the Standardized approach for providing Capital under Credit Risk, Standardized Duration Approach for Market Risk and the Basic Indicator Approach for Operational Risk. The Bank is also preparing itself for moving over to advanced approaches under Basel II. Risk is managed through three apex committees, viz., Credit Risk Management Committee (CRMC), Asset Liability Management Committee (ALCO) and Operational Risk Management Committee (ORMC). An independent Risk Management Department facilitates the above committees taking proactive steps to manage the respective risks. These committees work within the overall guidelines and policies approved by the Risk Management Committee of the Board and the Board. The Bank has adopted Integrated Risk Management Policy covering mainly the three major risks. Thirty-two policy documents are in place to manage various risks and they are integrated to analyse the risk enterprise-wide. The Credit Risk Policy, Asset Liability Management Policy, Operational Risk Management Policy, Business Continuity Planning Policy on Corporate Governance etc. deal comprehensively with management of risk. The field level functionaries are sensitized with action points and these are monitored at Branch, Circle and Head Office levels. The risk management systems are in place to identify and analyse risk at an early stage, set and monitor prudential limits and manage them to face the changing risk environment. A risk-scanning cell is formed to scan credit proposals and confirm ratings to ensure quality of credit portfolio. Loan Review Management Committee reviews the Loan Review Mechanism and Credit Audit functions periodically. In addition, Standard Assets Monitoring Committee reviews the Special Mention Accounts periodically to initiate timely action to prevent slippage of standard assets to nonperforming assets. The liquidity risk is managed through studying structural liquidity on a daily basis, which is being discussed in the Funds and Investment Committee and reviewed every month by ALCO. The interest rate risk is managed through monthly interest rate sensitivity statements monitored by ALCO. A mid office monitors treasury transactions independently. Operational risk is managed by integrating the operational risk management systems into day to day management processes and adopting various risk mitigating strategies. Arrangement with Rating Companies. The Bank has entered into MoU with all the four rating agencies viz. (a) Credit Analysis and Research Ltd. (CARE), (b) CRISIL Ltd., (c) FITCH India Ltd. and (d) ICRA Ltd. to enable the customers to get them externally rated as required under Standardised Approach.
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Conclusion: Our research project provides a brief overview of the Indian approach to implementing Basel II framework and the state of preparedness of the banks in India. It can be concluded that the Basel II framework provides significant incentives to banks to sharpen their risk management expertise to enable more efficient risk-return tradeoffs; it also presents a valuable opportunity to gear up their internal processes to the international best standards. This would require substantial capacity building and commitment of resources through close involvement of the bank's Top Management in guiding this arduous undertaking. It is, no doubt, a demanding and daunting task, both for the banks as also the supervisors. Implementation of Basel II has been described as a long journey rather than a destination by itself. Undoubtedly, it would require commitment of substantial capital and human resources on the part of both banks and the supervisors. RBI has decided to follow a consultative process while implementing Basel II norms and move in a gradual, sequential and co-coordinated manner. For this purpose, dialogue has already been initiated with the stakeholders. A steering committee comprising representatives of banks and different supervisory and regulatory departments is taking stock of all issues relating to its implementation. As envisaged by the Basel Committee, the accounting profession too, will make a positive contribution in this respect to make Indian banking system stronger. Reference: Annual Reports of selected Banks for 2007-08. Basel (2007), “History of the Basel Committee & its Membership”, publication of Basel Committee on Supervision Bouchard, J (2006), “Basel II: Where things stand”, Board of Governors of Federal Reserve IIB (2007), “Implementation of Basel II Challenges & Opportunities- Institute of International Bankers, USA ICRA (2005), “Report on Basel II Accord Impact on Indian Banks”, ICRA, Mumbai Joshi, Mayur S. (2005), “Basel II Three Steps of GovernanceMr. Mayur Sharad Joshi, Consultant- Risk Management Group, KPCA. RBI (2008), The Report on Report on Currency & Finance, Reserve Bank of India
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ISSN No. : 0974-0597
Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
Suspension of Accounting Standard (AS) 11: An Attempt to Defer the Pain Kamashetty S. B.
1
Abstract:
I ntroduction
AS 11 requires the companies to report their foreign currency monetary items based on the closing rate at the end of the accounting period and any profit or loss arising there from should be taken to the profit or loss account and not directly to the Balance Sheet.
The Ministry of Corporate Affairs (MCA), through a notification in the official gazette called the Companies (Accounting Standard) Amended Rules 2009, No. GSR 225 (E) Dated March 31, 2009 has suspended the Accounting Standard (AS) 11 for a period of two years up to March 31, 2011. This Standard deals with the effect of changes in the foreign exchange rate. It was issued in 1994 with a title “Accounting for the Effect of Changes in Foreign Exchange Rate” and till today the Council of Institute of Charted Accountant of India has revised the Standard twice 1994 & 2003. This Standard has always been in the lime light since its inception.
In the year 2006, the MCA had released the Companies (Accounting Standards) Rules 2006 and asked the India Inc. to prepare their annual statements in accordance with the AS11 and not as per Schedule VI of the Companies Act 1956. As such, it became mandatory and made applicable for the accounting periods commencing on or after December 7, 2006.
AS 11 requires the companies to report their foreign currency monetary items based on the closing rate at the end of the accounting period and any profit or loss arising there from should be taken to the profit or loss account and not directly to the Balance Sheet. In the year 2006, the MCA had released the Companies (Accounting Standards) Rules 2006 and asked the India Inc. to prepare their annual statements in accordance with the AS-11 and not as per Schedule VI of the Companies Act 1956. As such, it became mandatory and made applicable for the accounting periods commencing on or after December 7, 2006. In spite of this notification by the Govt. several large corporate entities continued to follow Schedule VI provisions and, in the process, defeated 2006 rules by taking legal opinion. Borrowing By Indian Entities:
1.
Chairman and Dean Department of Management Studies Karnataka State Women's University Vivek Nagar (Jalanagar), Bijapur 586103 Karnataka E-mail:
[email protected]
In order to take advantage of low interest rates, a large number of Indian companies had entered the foreign market and raised huge amounts of debt through the issue of Foreign Currency Convertible Bonds (FCCBs), External Commercial Borrowing (ECB), etc. But due to the adverse movement in the exchange rates most of the companies had borrowed at a time when the rupee (Rs.) was valued at 42 against dollar (USA), these companies are, now, sitting on huge losses. The Rupee has lost more than 27 per cent in the last one year, against the US $. In 2007, when the Indian Currency strengthened against the
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
green back, most of the Indian Corporate entities had booked huge gains. But during the year 2008, as a result of a drastic fall in the value of the Indian Rupee (Rupee has reached a record low of 52.19 on March 3, 2009), the debt liabilities of these entities have enhanced tremendously in terms of Indian Currency. As such, these companies started raising their voice against the AS-11 as they had to debit huge amounts of foreign exchange losses to their Profit and loss Account. In fact, any unfavorable movement in the Rupee value impacts Indian Corporate entities in two ways - it will not only impact negatively on their bottom-line but also enhance the debt burden. The table below very clearly shows that the borrowing by the Indian firms from the overseas market has substantially been low during 2008-09. These bonds are trading at a deep discount. Experts feel that some Indian companies may be forced to default in honoring their debt obligations. Raj Bhatt, Chairman and CEO of the London based Elara Capital Plc, opines that “of course, there will be defaults. If a bond is trading at a high discount, say close to 50 per cent, that indicates a higher chance of default”. Most of the issuers, while issuing the bonds, never thought that they would have to repay such amount one day and these entities, generally, feel that such bonds would get converted into equity. As the stock prices of such issuing companies are quoted below 20 per cent of the conversion price fixed then, the bond holders will be in no hurry to rush to Dalal Street as they will suffer loss if the option is exercised.
27
and BSE 500 companies is expected to touch Rs. 32,000 crore by 2012. Indian Companies will find it difficult to meet these liabilities as they will have to borrow with high coupon rate to redeem a debt of low coupon. A latest CRISIL study has revealed the fact that the net worth of these companies would decline by 17 per cent and profit by 11 per cent. We feel that the time is ripe to buy back these bonds as they are trading at a discount of 50 to 60 per cent. Though, the Central Bank of India now allows Indian Companies to buy back bonds of up to US $ 100 millions, only 16 companies have gone in for a partial buyback of these Bonds, amounting to US $ 526 million (Table No 2). In fact, between 2004 & 08 as many as 158 Indian Companies had issued Bonds and raised debt of $ 20 billion. Of this amount, so far, only US $ 3 billion worth of Bonds have been converted into Equity resulting in US $ 17 billion worth of Bonds still outstanding. Mark To Market (MTM) Losses: Many Indian corporate entities probably thought that the rupee would appreciate in its value and therefore, they did not cover their long term forex liabilities. Besides, another category of losses relates to export receivables. These exporters also thought that the rupee would appreciate and had covered their forex receivables at Rs. 40 41. As the rupee started depreciate, the expectation of these companies and exporters were belied and they had to make provisions for huge amount of forex losses.
During December (2008) quarter as many as 335 firms made a Sridhar C, Head, CRISIL Research indicators that “The mark to market provision of Rs. 9,618 crore in their forex redemption of cumulative outstanding FCCBs of CNX500 Table No. 1 Borrowing By Indian Inc. (In US $ milion) Month
ECB
FCCB
2007-08
2008-09
2007-08
2008-09
April
2,071.90
940.82
200.00
220.00
May
3,083.03
1,026.05
344.27
250.00
June
2,072.07
1,577.25
735.32
38.00
July
2,088.17
2,471.81
1,256.50
-
992.57
1,368.87
531.38
234.50
September
1,319.68
2,834.95
917.00
-
October
3,308.51
1,125.23
296.34
-
November
1,811.59
1,702.48
430.00
-
December
1,738.16
1,669.18
535.00
-
January
1,677.66
1,337.08
210.00
-
20,163.32
16,053.72
5,455.82
742.50
August
Total
Source: RBI data.
Suspension of Accounting Standard (AS) 11: An Attempt to Defer the Pain —Dr. S. B. Kamashetty
28
liabilities loans, receivables and derivatives, as against 165 companies making a provision of Rs. 9,815 crore in the last quarter. It clearly indicates that a large number of companies voluntarily are disclosing their losses. Experts estimate that more than 70 per cent of the MTM provisions on forex losses can be attributed to foreign currency loans, 20 25 per cent to losses suffered on forex receivables and 5 10 per cent on for ex derivatives.
various companies used to prepare their accounts as per Schedule VIth of the Companies Act, 1956. NACAS is a panel set-up by the Govt. of India under the Companies Act of 1956, with the representatives from the MCA, the RBI, CAG and Chamber of Commerce as members. As far as the implementation of Accounting Standards in India is concerned, NACAS is the final authority. It has powers to take suo moto decisions. Effects of Amendment:
As a result of charging such significant amount of losses to the Profit and loss Accounts, the profit margin of these companies had come under severe pressure. To address this issue, the apex bodies of corporate India demanded the suspension of AS-11 and when the Institute of Chartered Accountant of India (ICAI) did not agree to the change in accounting rule, the MCA decided to suspend this rule. The National Advisory Committee on Accounting Standard (NACAS) in its meeting, held on 24th March, 2009, recommended to the suspension of this Standard to MCA. It is worth mentioning here that just three years back, the same authority, through a notification dated December 7, 2006, made AS-11 applicable to companies. Before, prescribing this Standard as mandatory,
The following are the Key Amendments made to the AS-11 by the MCA 1)
These amendments are optional, retrospective, nonreversible, and applicable to only long-term foreign currency monetary items and not applicable to short term and non-monetary items. Though the MCA has made announcement in this effect in the first week of April, 2009, the amendment is applicable for the accounting periods commencing on or after December 7, 2006 and ending on or before March 31, 2011. In other words, if an entity decides to adopt
Table No. 2 Debt Slashed by Different Companies (In million) Company Name
Size
Buyback
Outstanding
Aurobindo Pharma
150
9.65
141.35
Financial Technologies
100
9.50
90.50
Firstsource
275
49.70
225.30
Flex Industries
85
45.00
24.00
Geodesic Info
125
8.50
116.50
Hotel Leela #
60
42.50
40.20
400
36.00
360.00
9090
60.00
7090.20
Jubilant Organosys
75
60.90
49.66
Moser Baer
75
39.50
57.50
Nahar Industries
45
35.30
9.70
175
37.80
137.20
Pidilite
40
1.10
38.90
Radico Khaitan
50
10.00
40.00
Reliance Comm
500
35.00
465.00
40
15.00
25.00
Jaiprakash Associates Jindal Saw*
Orchid Chemicals
Ruchi Infra
Figures in US dollars (# euro, * yen) Source: Business Standard dated: April 4, 2009.
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
29
Table No. 3 The Issue and Conversion Price Company Name
Issue Redemption Currency Amount Year
Outstanding Amount
Conversion Price (in Rs.)
Market Price (in Rs.)
Subex
Mar-12
USD
180
180
656.2
29.5
Market Price as % of Conversion Price 4%
Prime Focus
Dec-12
USD
55
55
1,386.8
116.6
8%
Subex
Dec-09
USD
10
10
325.0
29.5
9%
Marksans Pharma
Nov-10
USD
50
50
33.7
4.0
12%
Aftek
Jun-10
USD
35
9
75.2
9.5
13%
KEI Industries
Nov-11
USD
36
33
86.0
13.2
15%
Aban Offshore
Apr-11
JPY
11,610
5,410
2,789.0
428.1
15%
Prithvi Info. Solutions
Feb-12
USD
50
50
346.3
53.3
15%
Country Club (India)
Dec-11
USD
25
25
103.0
16.1
16%
Aksh Optifibre
Jan-13
USD
20
20
85.0
13.3
16%
Sakthi Sugars
May-09
USD
20
20
208.0
34.8
17%
Vardhman Textiles
Feb-11
USD
60
59
423.3
71.2
17%
Bajaj Hindusthan
Feb-11
USD
120
120
465.4
82.1
18%
Firstsource Solutions
Dec-12
USD
275
225
92.3
16.3
18%
Suzlon Energy
Oct-12
USD
200
200
371.6
66.0
18%
Wockhardt
Oct-09
USD
110
110
486.1
88.4
18%
Sakthi Sugars
May-11
USD
40
40
190.0
34.8
18%
Suzlon Energy
Jun-12
USD
300
300
359.7
66.0
18%
ISMT
Nov-11
USD
10
10
122.3
22.7
19%
Alok Industries
Jun-10
USD
70
24
72.0
13.9
19%
Source: CRISIL Research. this amended version, it has to adjust the profit or losses recognized earlier. Uttam Agarwal, President, ICAI, has said that those companies that opt for this latest flexibility, but had earlier booked profits in their P & L Account during this period, the entire gain previously recorded would have to be reversed. Therefore, this back dated effect would call for companies to adjust both the forex profit and losses recorded in earlier years. For instance, GMR had made Rs. 18 crore gain during the Year 2007-08 and incurred a loss of Rs. 130 crore for the nine months ended December 31, 2008. If a Company adopts this new rule, GMR will be able to write back Rs. 112 Crore (i.e., 130-18 crore) in forex losses which will boost its bottom-line for the year ended March, 2009. The companies have an option to either adopt this amended version or stick to the old one. But once opted to this new version, companies cannot change and
cannot go back to the earlier one. It is interesting to mention here that some of the companies, like Ranbaxy Laboratories and Larsen and Toubro have decided to continue to prepare their accounts based on the old rule. 2)
Where a company has borrowed money to acquire the fixed assets, the translation differences from the loan may be capitalized to the Asset and need not take them to the P&L A/c. In other words, any profit or loss arising from the fluctuation in exchange rate should be added or deducted to the respective asset in the Balance Sheet.
3)
Where a Company has taken a loan for other purpose, the translation differences from the loan shall be transferred to a special reserve called “Forex Fluctuation Reserve Account” created for the purpose and amortize the amount over the balance maturity period of the loan or the period ending on March 31, 2011, whichever is shorter, provided the period of such forex liability
Suspension of Accounting Standard (AS) 11: An Attempt to Defer the Pain —Dr. S. B. Kamashetty
30 Table No. 4 Losses as disclosed by few companies (for the Q3, 2008-09) Ranbaxy Essar Oil TCS M&M JSW Steel GHCL Tata Motors Maruti Dr. Reddy's Cipla Suzlon Tata Metaliks NIIT Gokaldas
Table No. 5 MTM provisioning made by a few Companies (During Q1, Q2 & Q3 of 2008-09)
Rs. Crore 1091.00 679.00 251.00 182.00 177.00 101.00 226.00 61.00 49.30 42.60 34.90 34.00 32.80 20.00
Quarter
Depreciation in
No. of Companies Amount
Rupee Value (%)
(Rs. crores)
Q1
7.28
335
9618
Q2
9.10
165
9815
Q3
3.93
107
6966
Source: Business Standard Feb 11, 2009 Divergent Opinions: The suspension of applicability of AS-11 has evoked a mixed response. Uttam Prakash Agarwal, ICAI president, is of opinion that the AS-11 relief given to companies could be a big blow to the going concern concept, which is an important basis on which financial statements are usually attested by auditors.
Source: Business Standard Feb. 11, 2009. exceeds 12 months, otherwise the companies have to charge to the P & L A/c. 4)
The benefit of relaxation is available only to the entities registered under the Companies Act 1956 and hence non-corporate entities have to continue with the prevailing practice.
5)
Such entities which opt for these new principles have to make separate disclosure stating the amount remaining un-amortized for every subsequent period.
Kaushik Datta, National leader IFRS practice, Price water house coopers feels that financial information is relevant and reliable only when it is a faithful representation of transactions as they have happened. Resorting to changing the accounting norms and rule for the past events in order to achieve a shortterm objective of postponing of losses by companies is against the basic accounting framework and principles and our global relevance will only be enhanced when we adopt and follow global standards of accounting in the letter and the spirit of these standards despite some of the most difficult resultant financial crisis that we may witness. Prabhal Benerji, Group CFO, Hinduja Group opines that
Table No. 6: The Profit or Losses as booked by few Companies (In Rs Crore) Forex loss 2006-07 2.43
Forex loss 2007-08 20.42
Forex gain 2007-08 594.72
Tata Motors
65.21
137.61
0.00
0.00
409.84
632.55
JSW Steel
19.22
107.45
0.00
0.00
314.84
815.21
2.78
13.45
0.00
0.00
387.28
377.66
Tata Steel
M&M
Net Profit Dec2008 9486.00
Forex loss Dec2008 884.76
Forex gain 2006-07 0.00
Suzlon Energy
0.00
35.78
49.20
0.00
-285.91
434.50
Jubilant Organ.
65.82
104.78
0.00
0.00
-137.53
424.17
JSL Ltd.
49.00
56.57
0.00
0.00
-418.60
423.66
Jindal Steel
13.06
58.92
0.00
211.89
1179.63
260.19
Ashapura Minech
0.00
7.54
5.98
0.00
-76.39
171.14
Bharat Forge
4.47
21.12
0.00
0.00
8.49
185.06
Source: Business Standard April 08, 2009
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
31
Table No. 7 Table Depicting Divergent Opinion Proponents for Change
Opponents of Change
It is designed to suit the normal economic conditions. The present market conditions are extremely unusual, not likely to be witnessed in an average life time and what we are facing are clearly not normal times.
One of the fundamental principles and assumptions of accounting embodied in the framework for preparation and presentation of the financial statements issued by accounting profession regulator is consistency and a change in accounting policy is made only in exceptional cases. Exceptional circumstances are not expected to recur & the downturn is a part of business cycle which is expected to recur
2) The Indian currency has lost its value by 27% in the last one year, the global markets are in turmoil & we are witnessing a wild exchange fluctuation in the foreign exchange market, which is adversely impacting on our bottom line.
When the exchange rate moved in their favour, they did not have any problem and booked huge profits.
3) The Schedule VI of the Indian Companies Act 1956 does not ask the companies to recognize the foreign exchange profit or losses to their Profit and Loss Account.
AS-11 is prepared in line with the International Accounting Standard (IAS) 21 and is based on the fair value of accounting which reflects the true and fair picture of the affairs of the companies and India Inc are blaming this messenger for problems of their own making. The Companies Act prescribes the minimum that should be disclosed just to comply with the law. The Act, certainly, will not punish any company for disclosing beyond the minimum prescribed.
4) MTM has caused the financial crisis and therefore, even in USA also FASB has changed/modified the MTM accounting rules.
Financial crisis is a result of several factors high leverage, complex derivatives products etc. A study conducted by SEC, in 2008 has revealed that fair value accounting did not lead to any of bank failures in the US.
5) These are the paper/notional losses and real gain or losses will be known on the day when these loans become payable.
It gives a fair assessment of where a company stands at a point of time or worth of the company if it were to be liquidated immediately and as such it gives more accurate information to all the stakeholders.
“compliance of AS-11 will actually be misleading as standard-companies will debit the profit and loss account heavily in one year of depreciation and will reverse this when the rupee appreciates. It is, therefore, evident that experts have different opinions about this amendment (Table-7) Conclusion: In fact, more than hundred countries of the world have already adopted International Financial Reporting Standards (IFRS). The Govt. of India too, through a press release issued in May, 2008 has said that the Indian Accounting Standards will be fully converged with IFRS by April 1, 2011. This suspension of Accounting Standard by the Govt. is a retrograde step and
provides a wrong signal to the investors. It is true that the global markets are in turmoil and we are witnessing huge exchange fluctuations in the forex market. But merely because a company's financial statement depicts huge losses on account of following this standard, one cannot dispense with it. Changing the accounting rules does not help the companies to avoid such losses. A study conducted by Merrill Lynch has disclosed the fact that the investors prefer the MTM or fair value accounting as it provides the most relevant information about an entity's assets at a given point of time. In spite of this fact, recently the Financial Accounting Standard Board an accounting regulating body in the USA, has also effected some changes to its accounting rule that allows banks to hold the toxic assets on their books without marking them down to
32
Suspension of Accounting Standard (AS) 11: An Attempt to Defer the Pain —Dr. S. B. Kamashetty
currently depressed market price. Historical cost based accounting does not reflect the risk inherent in the assets and liabilities of a corporate entity and this has been proven time and again. The argument of the Indian Companies that the Schedule VIth of the Companies Act does not ask them to prepare their accounts by following the fair value accounting is at best tenuous. If we are to replace a certain frame work, regressing backward is not the answer. References: Bisserbe, Noemie (2009), Flagging The Holes, Business World, Vol. 28 Issue 47, April 13, pp: 38 & 39. Balasubramanya, K. R. (2009), The FWord: That's Laid India Inc. Low, Business Today, Vol. 18, No. 11, May 31, pp: 72-75. AS-11 breather will bring limited relief for companies (April 7, 2009), Economic Times. SC dismisses I-T plea on Forex looses (April 10, 2009), Business Standard
ISSN No. : 0974-0597
Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
An Inventory Model with Return of Item: A Note Sinha Pritibhushan1
Abstract:
I ntroduction:
We present a probabilistic inventory model, in which only one unit of the item may be in use. A unit has a given span of use. A new unit is received after a random lead time, after an order is placed. Once the new unit is received the current unit is returned. An analysis of the model and the method to obtain an optimal solution are given.
Inventory decisions such as, when to order, how much to order for materials are often very important. Such decisions may arise for raw materials required for production, materials required for service provisioning, or in other contexts such as maintenance of machinery. Many types of inventory models have been discussed in the literature. We may find such discussions in Hadley and Whitin (1963), Silver et al. (1998), and in other texts. In this article, we present an inventory model, in which, characteristically, the unit in use is returned once a new unit is received. A cost is imposed on delayed supply of the new unit.
Key Words: Inventory Model, Return of Item, Probabilistic.
We consider that, there is one unit of an item. Consumption rate for the item is a known constant, which gives a fixed time in which a unit of the item is exhausted. If the next unit is not received on or before the current unit is exhausted, an alternative arrangement is made at a higher cost per unit time. Lead time of the supply is probabilistic. Given this, one has to decide when to order for the next unit. It may be desirable that the next unit is ordered before the current unit has still some time. As much as we are aware, such a model has not been discussed in the literature. The model may be applicable in such a situation as we describe next. Suppose a machine is hired on lease, and will be returned after a fixed time. But, it is not precisely known when such a machine would be available by another such contract, once the search is commenced. If such a machine is available later than the first contract is over, an alternative arrangement is made for the intermediate time. If it is available earlier, the current machine has to be returned and the new installed, because of lack of space for keeping two units and rare availability of such machines. A household application of the model is also possible, if we consider ordering and receiving cooking gas cylinders, when there is only one cylinder for use. Once a new cylinder is received, the current one has to be returned.
1.
Consultant (Operations Management & Market Research) 6 A J C Bose Road, Thakurpukur Kolkata 700 063 West Bengal INDIA E-mail:
[email protected]
In the following sections, we describe the model and derive an optimal solution. Application of the model is illustrated with a numerical example. We conclude with some relevant observations. Model : The model has the following assumptions.
An Inventory Model with Return of Item ; A Note —Pritibhushan Sinha
34 (i) (ii)
The cost of a new unit is A (> 0). Consumption rate for the item is constant and a unit lasts for Y0 time units. The system starts with a new unit of the item at time t = 0. An order is placed when the unit has Y1 time units left. Another new unit is received after a random lead time. This continues indefinitely.
(iii)
Once the next unit is received, it starts to be used and the current unit is returned immediately.
(iv)
If the next unit is received later than the current unit is exhausted, an alternative arrangement is made for the intermediate time, with a cost of c (> 0) per unit time.
(v)
Lead time of supply is given by the non-negative random variable (r.v.) X. Lead times are independent and identically distributed. X is a continuous r.v. with probability density function (p.d.f.) f(x). The distribution function is denoted with F(x) and its complement as, Also, f(x) > 0, in an interval (a, b); f(x) = 0, otherwise. Then, F(x) is monotonically increasing in this interval. Take, ¥ > b > a ³ 0.
(vi)
Life span of a unit is greater than equal to b, Y0 ³ b. For the time of ordering, take, a < Y1 £ b.
(vii) Cost of the unit satisfies, A < cY0. (viii) Objective function is cost per unit time in the long run. The above assumptions would be appropriate for most of the practical situations that we consider. It may be noted that, the case A = cY0 is not of practical significance since then the alternative arrangement should always be used, without any need of the item. Furthermore, a stock out can always be avoided as Y0 ³ b. But, ordering too early may increase average cost per unit time. Such solutions though, are considered in getting an optimal solution. There is no need to have more than one pending order, as in the model, the operating unit has to be returned as soon as a new unit arrives. Inventory holding cost also does not arise for this. Ordering cost, if any, may be included in A, assuming that such ordering cost also remains constant. Analysis and Optimization: The next unit is ordered when there are further Y1 time units for the current unit to be exhausted. Receipt of every new unit gives an identical, independent renewal cycle. This allows us to apply “Renewal Reward Theorem” (see, e.g., Ross (1990)), to calculate cost per unit time in the long run. This is given as, b
A + c ò ( x - Y 1) f ( x)dx Y1 K (Y 1) = (Y 0 - Y 1) + E[ X ]
(1)
The numerator gives expected cost in a cycle and the denominator expected time length of the same. To minimize, we set the derivative dK/dY1 equal to zero.
b
dK = dY 1
- cF (Y 1)((Y 0 - Y 1) + E[ X ]) + ( A + c ò ( x - Y 1) f ( x)dx) Y1 2 ((Y 0 - Y 1) + E[ X ] )
= 0
(2)
We get, b
( A / c) + ò xf ( x)dx Y1 F (Y 1) = Y 0 + E[ X ]
(3)
Since, at Y1 = a, left hand side (lhs) of equation (3) is 1 and right hand side (rhs) is less than 1; and at Y1 = b, lhs is 0 and rhs is greater than 0; and both sides are monotonically decreasing, the above equation has a unique solution in (a, b). Also, A - cY 0 dK ® < 0, as Y1 2 dY 1 (Y - a + E[ X ] )
a.
(4)
0
That is, as Y1 tends to a from rhs, derivative tends to a negative value. Thus, the solution is a global minimum point for the problem. If a < Y0 < b, but there cannot be more than one pending order, we may get the solution in the same manner, considering now that a < Y1 £ Y0, since the analysis does not change in this case. If the solution obtained thus is less than Y0, that would be the solution for the problem; if it is greater than equal to Y0, then the solution would be Y0; i.e., place an order as soon as a new unit is installed. For Y0 £ a, the objective function is changed somewhat, but it can be seen easily that with the same condition of not more than one pending order, the optimal solution is Y1 = Y0, in this case too. A Numerical Illustration Take A = Rs 300; Y0 = 30 days; c = Rs 40/day; lead time (X) is distributed uniformly in (3, 8) days. This satisfies, A < cY0. Equation (3) gives, 8
(8 - Y 1) / 5 = ((300 / 40) + ò ( x / 5)dx) / 35.5 Y1
i.e., 0.5
Y
2 1
- 35.5Y 1 + 214.5 = 0.
Discarding the solution Y1 > 8, we get Y1 = 6.67. So, optimally, a new unit should be ordered when the current unit still has 6.67 days to get exhausted. This is considerably more than the average lead time (5.5 days). Concluding Remarks: We have presented an inventory model, which may have applications in industrial contexts. It may also have some household applications. The latter type of applications should also be given importance, since the overall impact, considering the number of households, may be substantial. Optimization in household/ daily life activities can be of large benefits and should be given due importance in the modern
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
days. A number of extensions or variations of the model is possible. Some of these extensions would be applicable where : i)
the time in which a unit is exhausted may be considered as a random variable;
ii)
the life span is less than the maximum possible lead time, and there is no constraint that there can be only one pending order, and there is an ordering cost;
iii)
an inventory of the item with a possible maximum number of units is maintained this may be required when the life span of a unit is much less than the average lead time and/ or the cost of the alternative arrangement is substantially higher.
It will be worthwhile to study such variations, which will broaden the scope of application of these models. References: Hadley, G. & Whitin, T. (1963) Analysis of Inventory Systems. Prentice-Hall, Englewood Cliffs, NJ. Ross, S.M. (1990) Applied probability Models with Optimization Applications. Holden-Day, San Francisco. Silver, E.A., Pyke, D.F. & Peterson, R. (1998) Inventory Management and Production Planning and Scheduling. Wiley, New York.
35
ISSN No. : 0974-0597
Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
Do Celebrities really Influence Consumers? Kapse Manohar1, Pathak Anuradha2, Sharma Shilpa3
Abstract:
Introduction:
Purpose: The purpose of this study is to find whether celebrities really influence consumers.
"A sign of a celebrity is that his name is often worth more than his services. - Daniel J Boorstin
Design/Methodology/Approach: This study was conducted in Indore city with the sample size of 134 in the age group of 18-40 Years. We have used statistical tools such as descriptive statistics and factor analysis in our study. Findings: Results revealed that the respondents are loyal towards any product irrespective of the act of advertising the same product through any specific celebrity. They do pay attention to advertisements using celebrity icons and celebrities somewhat help them to remember a brand. Their styles are influenced by the endorsing celebrity but they had rarely purchased any product under the influence of any celebrity. According to them celebrities do not bring credibility to any advertising messages. This implies that celebrity endorsements do not have any impact on buying intentions or consumer behaviour, and that consumers' decisions are only rational. Originality/Value: Today's dynamic market conditions may not always give a positive return on the expectation that investing on celebrities will help a lot and thus making investments on celebrities is not always a good idea. Keywords: Celebrity Endorsement, Remembrance, Impact, Advertisement, Buying Behaviour 1. Reader, MBA Department at Shri Vaishnav Institute of Management, Scheme No. 71 Gumashta Nagar, Indore, M.P Email id:
[email protected]
Endorsement is a channel of communication where celebrities act as spokesperson of the brand and by extending their popularity and personality they certify the brand's claim and position. The term celebrity refers to an individual who is known to the public (actor, sports figure, entertainer, etc.) for his or her achievements in areas other than that of the product class endorsed (Friedman and Friedman, 1979). The basic assumption underlying a celebrity endorsement is that the value associated with the celebrity is transferred to the brand and, therefore, it helps in creating an image that can be easily referred to by consumers. As a result by association, the brand can very quickly establish the credibility, it can get immediate identification and thus can improve sales. Research studies have proven that known products and names are sold more than unknown ones. Therefore, a known brand or an optimally exposed brand will find more recognition and buyers in the market in comparison to completely unknown or unexposed brands. And that is why marketers make use of celebrities to influence consumers and sell products. They openly acknowledge the power of celebrity in influencing buyer's purchase decision. Marketers pay millions of dollars to celebrity endorsee hoping that the stars will bring their magic to the brand they endorse and make them more appealing and successful. More or less every consumer has a brand preference and has given the affordability and societal norms, each buyer would like to buy and consume one of the highly acceptable, recognizable, and reputed brands.
2. Lecturer, MBA Department at Shri Vaishnav Institute of Management Scheme No. 71, Gumashta Nagar, Indore, M.P. Email id:
[email protected]
A Celebrity endorsement is more likely to be observed for those products having a high price-production cost margin and on a large customer base. In short, the celebrity endorsements are more typical for nationally marketed products than for the local or niche market products and for products such as running shoes, soft drinks and the like for which the price cost margins are apparently large.
3. Lecturer, MBA Department at Shri Vaishnav Institute of Management Scheme No. 71, Gumashta Nagar, Indore, M.P. Email id:
[email protected]
The Previous studies have revealed that consumers positively value the use of celebrity endorsers in the advertisements. The ads which use celebrities are easy to recall by the viewers and
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
help to retain brands, but today's dynamic market conditions may not always give a positive return on this expectation and thus making investments on celebrities is not always a good idea. Literature Review: How the celebrity endorsements affect the consumer purchase decision is studied extensively by marketing and social psychology researchers. Various hypotheses have been put forward including that celebrity endorsement have recall of the product. Celebrities have credibility on expertise that makes the product more desirable or enhances perceptions of quality. The celebrity endorser's image is transferred to the product so that those who use the product are associated with the image. Experiments suggest that in certain situations, celebrity endorsement can enhance recall and consume assessment of the products. Clark & Horstman (2003). McCracken (1989); Silvera and Austad (2004), defined Celebrities as people who enjoy public recognition and who often have distinctive attributes such as attractiveness and trustworthiness. Ohanian(1991) finds that in a market where advertising plays a vital role in coordinating consumer purchases, it becomes pertinent for companies to induct all possible measures to influence, motivate and inculcate desire to purchase, in the customer, through an effective advertising campaign. Theory and practice prove that the use of superstars in advertising generates lot of publicity and attention. Khatri (2006) found that celebrity endorser is a panacea for all marketing woes. It is a frequently used approach in marketing for all brands building exercises today. The star appeal however needs to be perfectly blended intelligently and strategically to reap benefits and make brands .It serves as an aid to expedite recall and influence purchase. But can also be a nightmare unless accompanied by a powerful idea, effective and impeccable positioning. A study by Sharma (2007) finds that nowadays consumer is not easily swayed by a celebrity in an ad but he needs full fledged information about the product also, followed by brand name, overall appeal, and music/jingle. Advertisements being endorsed by celebrities are found to be less attractive and that the use of celebrities may not change the buying behaviour of consumers significantly. Linda Orlando (2005) According to many companies are beginning to shy away from big names and get rid of celebrity endorsements altogether, not only because endorsement fees continue to skyrocket, but more importantly because highpowered marketing execs say their brands are being overshadowed by the high-profile celebrities who promote them. Sometimes the celebrities get more mileage from the endorsement than the product does.
37
Gary Harwood (2004), Research conducted by Bates in India that tracked consumer opinion on the 'relevance and effectiveness of celebrity advertising in building brands', urged brands to 'de-celebritise' and focus on ideas. Concluding that ideas, and not celebrities, build brands, the study identified the optimum celebrity 'fits' and the cases where celebrities overshadowed brand-building performance. Mishra and Beauty (1990) Petty et al (1983) and Menon et al (2001) indicate that celebrity endorsements enhance brain recall. The use of celebrity for endorsements creates a very favorable impact on the consumer and it forces a consumer to purchase a product. Joshi & Ahluwalia (2008) find that the use of celebrity for endorsements create a very favourable impact on the consumer and it creates a connection which forces a consumer to purchase a product. Dasgupta (2008), according to a research conducted by IMRB, an international research agency, across Mumbai, Delhi, Kolkata and Chennai, Indore and Lucknow, Ajmer, Madurai, Ranchi and Cuttack, reveals that the most prominent ads are those with celebrities in it and it doesn't influence consumers' purchase pattern at any point of time, it rather creates confusion for the consumer on the recall. According to Agrawal & Kamakura (1995), the use of celebrities in advertising has proven to be profitable in the past since the announcement of a celebrity endorsement contract has been shown to actually increase the value of a company's stock portfolio. Kamins (1990) found that attitudes toward ads and products became favorable as celebrity endorser's attractiveness increased. Till and Busler (1998), Till and Shimp (1998) found that although a number of celebrity endorsements turned out to be very successful, other attractive celebrities did not. Becker and Murphy (1993), According to an intended influence of any advertisement (especially those using endorsers) on the purchase or the increase in the purchases of the product should be treated as a change in demand rather than a change in consumer tastes or preferences. This is because a change in tastes and preferences tends to take time, while the impact of advertisements is of a short term nature Research Objectives: The objectives of the paper are as follows: 1) To find the factors of celebrity endorsement which are considered as important by the youths of Indore City. 2) To study celebrity endorsement as a source of product recall and its impact on purchase decisions. 3) To find which type of celebrity persona is preferred.
Do Celebrities Really Influence Consumers? —Prof. Manohar Kapse1, Prof. Anuradha Pathak2, Prof. Shilpa Sharma3
38
Table 2 Total Variance Explained Research Methodology:
Component
The universe of the study is the youths of Indore City in the age group of 18-40 Years. In all, 150 questionnaires were distributed by convenient sampling method out of which 134 were selected for the study with a response rate of 89.33 %.The data collected with the help of questionnaires were coded , tabulated and suitable statistical tools used for analysis. Objective 1 To find the factors of celebrity endorsement which are considered as important by the youths of Indore City. For the purpose of finding the important variables, we have used Principal Component Analysis with the help of SPSS software. To find whether Factor analysis is possible or not we have used KMO and Bartlett's test. The KMO statistics varies between 0 and 1, a value of 0 indicates that the sum of partial correlations is large relative to the sum of correlations indicating diffusion in the pattern of correlation. A value close to 1 indicates the patterns of correlation are relatively compact. Since the value of KMO is 0.669 which is high. So from the KMO value, factor analysis is appropriate for the data. Since the p value of Bartlett's Test of Sphericity is 0 .00, we can consider Factor Analysis for extraction and reduction Table 1 KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Bartlett's Sphericity
Test of
.669 Approx. Chi-Square
491.620
df
78
Sig.
.000
of variables from this p value. In the analysis process we have extracted 13 factors. The variances of 13 factors are as follows. From the table' total variance explained' the rotated sum of square loadings are given, the variance explained by each of the component is nearly 7-8 %, that is, all the thirteen variables are nearly important. On the basis of variance the thirteen important variables are Q11 loyalty, Q4 Remembrance, Q15 credibility, Q12 influence, Q14 celebrity icon, Q7 controversy, Q13 style, Q5 liking, Q6 disliking, Q10 film stars, Q9 initiator,Q3 endorsing celebrity (role model), Q8 impact Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. A Rotation converged in 7 iterations. From the SPSS factor analysis we have extracted 13 factors of the data and found the Rotated component matrix for the thirteen components. From the table above of the Rotated Component Matrix, the thirteen components are Q11 loyalty,
Rotation Sums of Squared Loadings Total % of Variance Cumulative %
1
1.031
7.933
7.933
2
1.024
7.879
15.812
3
1.023
7.865
23.677
4
1.021
7.850
31.527
5
1.020
7.843
39.370
6
1.015
7.806
47.175
7
1.007
7.746
54.921
8
.998
7.673
62.595
9
.987
7.590
70.184
10
.986
7.585
77.769
11
.976
7.505
85.274
12
.963
7.409
92.683
13
.951
7.317
100.000
Extraction Method: Principal Component Analysis. Q4 Remembrance, Q15 credibility, Q12 influence, Q14 celebrity icon, Q7 controversy, Q13 style, Q5 liking, Q6 disliking, Q10 film stars, Q9 initiator,Q3 endorsing celebrity, Q8 impact. The first variable therefore is Q11, loyalty, with high correlation as the first component followed by Q4, Remembrance, with second highest correlation as the second component and so on. The thirteen components are extracted and on the basis of the variance we can find their relative importance as given by the respondents. Impact of Q11_loyalty ( x,s) (2.3806, 1.20647):- From the mean values and variance it can be concluded that respondents would continue to buy the same goods from the market irrespective of the act of advertising the same product through any specific celebrity, i.e. whether a product is endorsed by any celebrity or not, it hardly matters; which shows that they are loyal towards that particular product. Impact of Q4_Remembrance (x,s) (2.0970, 0.94088): From the data it is clear that celebrity in advertisements somewhat help respondents to remember a brand. Impact of Q15_credibility (x,s) (2.5746, 1.06465): Accordingly celebrities do not bring credibility to any advertising messages. Impact of Q12_influence (x,s) (3.3731, .85551): The respondents had rarely purchased any product under the influence of any celebrity.
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
39
Table 3 Rotated Component Matrix (A) Component 1 Q11_loyalty Q4_Remembrance Q15_credibility Q12_influence
2
3
5
4
6
7
9
8
10
11
12
13
.959 .943 .958 .954
Q14_celebrity_icon
.943
Q7_controversy Q13_style
.935 .928
Q5_liking
.920
Q6_disliking
.905
Q10_filmstar
.912
Q9_initiator
.908
Q3_endorsing_celebrity
.893
Q8_impact Impact of Q14_celebrity_icon (x, s) (2.6791, 1.06623): The respondents usually pay attention to those advertisements using celebrity icons. Impact of Q7_controversy (x, s) (3.4776, .93162): Research also revealed that people would not stop buying a brand only because its endorsing celebrity is involved in any controversy.
.890 only because of endorsing celebrity. Impact of Q8_impact ( ) (2.2910, 1.06781) : Respondents believe that celebrities somewhat cast an impact through advertisements. Objective 2 : To study celebrity endorsement as a source of product recall Q4 Remembrance :
Impact of Q13_style (x, s) (2.6716, .98695): In fact their styles are influenced by the endorsing celebrities. Impact of Q5_liking (x, s) (3.1940, .85381) and Q6_disliking ( x, s) (3.6045, .81359): Neither their liking nor their disliking to a particular celebrity has any impact on buying decisions. Impact of Q10_filmstar (x, s) (2.8284, 1.02250): Respondents are attracted comparatively more to film stars than towards any other celebrity. Impact of Q9_initiator (x, s) (2.3060, .92767): Results revealed that celebrities do help them to recall the product, but still, to a very small extent, celebrities initiate an action to buy that product. Impact of Q3_endorsing celebrity ( x, s) (3.4701, .81055) : Research revealed that respondents do not keep using a brand
Frequ -ency Valid To a Great To a Great Extent some what very little not at all Total
41 51 30 12 134
%
30.6 38.1 22.4 9.0 100.0
Valid % Cumulative %
30.6 38.1 22.4 9.0 100.0
30.6 68.7 91.0 100.0
Do Celebrities Really Influence Consumers? —Prof. Manohar Kapse1, Prof. Anuradha Pathak2, Prof. Shilpa Sharma3
40
Q4 Rememberence
Q2 Consideration
60
Frequ -ency Valid To a Great 20 Extent 94 some what 19 very little 0 not at all 0 Others 1 Total 134
50
40
30
20
10
% 14.9 70.1 14.2 0 0 7 100.0
Valid % Cumulative % 14.9 14.9 70.1 85.1 14.2 99.3 0 99.3 0 99.3 .7 100.0 100.0
Q2 Consideration
0 To a Great Extent
some what
very little
not at all
Q9 Initiator
Valid To a Great Extent some what very little not at all Total
100
80
Frequ -ency
%
26 58 33 17 134
19.4 43.3 24.6 12.7 100.0
Valid %
Cumulative %
19.4 43.3 24.6 12.7 100.0
19.4 62.7 87.3 100.0
60
40 20
0 To the Great some what Extent
Q9 Initiator
very little
not at all
From the data it is clear that celebrities do help the respondents to remember a brand and around 58% believe that to some extent they initiate an action to buy that product. Quality of a brand is noticed at a priority (94%) followed by the credibility of the brand (20%) and endorsing celebrities are nowhere noticed in any brand. It is also clear that 51% of the respondents believe that celebrities in advertisements do help them to remember the brand.
60
50
40
Objective 3 :
30
To find which type of celebrity persona is preferred.
20
Q4_celebrity_figure 10
0 To the Great some what Extent
very little
not at all
Frequ % -ency Valid models 25 18.7 sports stars 25 18.7 film stars 75 56.0 others 9 6.7 Total 134 100.0
Valid % 18.7 18.7 56.0 6.7 100.0
Cumulative % 18.7 37.3 93.3 100.0
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
Q9_celebraty figure
41
Becker, Gary S. and Murphy, Kevin M. (1993), "A simple theory of advertising as a good or bad," The Quarterly Journal of Economics, Vol. 108, Iss. 4, pg. 941-965.
80
Clark, C.R. & Horstmann, I.J. (2003). Celebrity endorsements. Unpublished manuscript [http://www.rotman.utoronto.ca/ihorstmann/JEMS.200507-07.clark.pdf].
60
Dasgupta (2008), “Celebrities aid brand recall, but may not influence buying: A Study”, from The Financial Express.htm
40
Friedman, Hershey H. and Linda Friedman (1979), "Endorser Effectiveness by Product Type," Journal of Advertising Research, 19 (5), 63-71.
20
Gary Harwood (2004), “Do celebrity endorsements build brands”, Article from Bizcommunity.com/branding
0 Models
sports star
film star
others
From the frequency distribution table film stars are mostly preferred (75%) followed by models and sports star (25%). Conclusion: In a country like India, celebrities act as major opinion leaders and since awareness levels are low, celebrities play a major role in brand recall. Celebrities are helpful in initiating a desired state, need among people. The respondents usually pay attention to those advertisements using celebrity icons. The study revealed that to some extent celebrities initiate an action to buy a product. Whether a product is endorsed by any celebrity or not, it hardly matters which shows that respondents are loyal towards any particular product irrespective of the act of advertising. Celebrity in advertisements somewhat help to remember a brand. But they do not bring credibility to any advertising messages. The respondents had rarely purchased any product under the influence of any celebrity. Also people would not stop buying a brand only because its endorsing celebrity is involved in any controversy. Film stars are identified as mostly preferred celebrity followed by models and sports star. Also people would like to see kids, animals, cartoons and animated characters. But today's market is a dynamic one and it may not always give a positive return on the expectation that investing on celebrities will help a lot and thus making investments on celebrities is not always a good idea. The important aspect that companies must note is that celebrity endorsements cannot replace the complete brand building processes. The celebrity does not have the control to improve or weaken the competence and features of the core product. References : Agrawal and Kamakura, Wagner A., (1995), "The economic worth of celebrity endorsers: An event study analysis," Journal of Marketing, Chicago, Vol. 59, Iss. 3; pg. 56-63.
Joshi & Ahaluwalia (2008), “The Impact of Celebrity Endorsementson Consumer Brand Preferences”, from www.indianmba.com/FacultyColumn Kamins, M. A. (1990), “An Investigation into the "Match-Up" Hypothesis in Celebrity Advertising: When Beauty May be Only Skin Deep”, Journal of Advertising, 19, (1) 4-13. Khatri (2006), “Celebrity Endorsement: A Strategic Promotion Perspective”, Indian Media Studies Journal Vol.1 No.1. July-Dec. 2006 McCracken, G., (1989), “Who is the Celebrity Endorser? Cultural Foundations of the Endorsement Process”, Journal of Consumer Research, Volume 16 December, pp. 310 - 321 Misra,S and S,. Beatty, “Celebrity spokesperson and Brand Congruence”. Journal of Business Research, 21 (1990) pp159-173. Ohanian, Roobina (1991), “The Impact of Celebrity spokespersons” Perceived Image on Consumers' Intention to purchase, “Journal of advertising Research, 31(1), 46-53. Orlando Linda (2005) “Celebrity Endorsements Selling Companies Short”, Article from Buzzle.com Petty, R.E., J. T. Cacioppo, and D. Schumann (1983) Central and peripheral routes to advertising effectiveness: The moderating role of involvement. Journal of Consumer Research 10(2): 135-146. Sharma Sandhir (2007), “Celebrities don't affect consumer decision making, says study”, from www.indianmba.com/Faculty Column Silvera, D. H. and Austad, B. (2004), “Factors predicting the effectiveness of celebrity endorsement advertisements”, European Journal of Marketing 38 (11/12): 15091526.
ISSN No. : 0974-0597
Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
An Economic Assessment of the Kolhapur Irrigation Department Benni Basavaraj S.1
Abstract:
Introduction
Climate, soil and water are three basic natural resources that determine the nature, scope and extent of a success for growing crops. The Modern methods of agriculture help to increase the yield and productivity of crops. These new methods of cultivation require sufficient irrigation facilities. The main concern of productive agriculture is regular and proportionate supply of water to fields of crops.
Irrigation is an age-old practice and in fact, as old as man's first attempt at crop growing. Climate, soil and water are the three basic natural resources that decide the nature, scope and extent of a successful crop growing. The climate decides the availability of water and the type of crops to be grown in a region, while the soil serves as a storehouse of water and nutrients for plants. Water is vital for the progress of any life and there can be no substitute for it. In India, irrigation has dictated and decided to a large extent the pace and the process of agricultural development. The main concern of productive agriculture is the effective and efficient supply of water to fields of crop for higher productivity and yields.
The general inadequacy of irrigation water and the growing demand for crop production including the cash crops in modern times need a systematic study of the irrigation problems and the methods of efficient and economic use of water. Since the irrigation potential is created at a huge cost, it is necessary to derive the maximum benefits from the created potential. Often a gap exists between the irrigation potential created and its utilization which makes the situation more serious. Two situations are likely to arise in deciding the course of water management. When the arable land is large compared to the waters available for growing crops, the objective of efficient water management would be to maximize crop production per unit of water. On the other hand, when the land is limited as compared to available water, the aim would be to maximize the production per unit of land without wasting water. Here comes the role of the irrigation department. The paper aims at assessing the performance of the Kolhapur Irrigation Department. The paper highlights major issues of the Kolhapur Irrigation Department.
1.
Head & Professor Department of Management Studies S.D.M College of Engineering & Technology, Dharwad. Email :
[email protected]
There are several studies which have brought out many issues of irrigation but micro level management and assessment of irrigation work at the departmental level is still an untouched area in our country. Need for the Study: Water is an important and indispensable input of agricultural production. The other inputs being constant, the yield of irrigated land remains much higher than that of the rain-fed land. Irrigation has been assigned a vital role in the plans for agricultural development of our country. The modern methods of agriculture help to increase the productivity of crops. These new methods of cultivation require sufficient irrigation facilities. The supply of land being inelastic, accelerated growth in agricultural production is possible only through the realization of increased crop productivity, which in turn is highly dependent upon irrigation. The main concern of productive agriculture is the effective and efficient supply of water to the crop fields. The general inadequacy of irrigation water and the growing demand for crop production, including remunerative cropping in modern time, need a systematic study on irrigation problems and methods of efficient and economic use of water. Since irrigation potential is created at a huge cost, it is necessary to derive maximum benefits from the created potential. Often a gap exists between the irrigation potential created and its utilization and makes the situation more serious. A large amount of water is wasted in conveyance and distribution system where the lining of canals, distributaries and watercourses have either not been undertaken or have been ill
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
maintained. The improper irrigation schedules, land grading and levelling and faulty methods of irrigation lead to waste of water in cropland. Two situations may arise in deciding the course of water management. When the arable land is large as compared to the water available for growing of crops, the objective of efficient water management would be to maximize crop production per unit of water. On the other hand when the land is limited as compared to the available water, the aim would be to maximize production per unit of land without wasting water. Here comes the role of the Irrigation department.
43
for studying different objectives. Kolhapur Irrigation Department: Structure of the Kolhapur Irrigation Department: There are five sub divisions under the Kolhapur Irrigation Department namely Pachaganga Irrigation Sub-Division, Bhogavati Irrigation Sub Division, Warana Irrigation Sub Division, Gadhinglaj Irrigation Sub Division, and Dudhaganga Irrigation Sub Division; and there were twentythree sections under these five sub divisions. There are totally 635 sanctioned posts in the Kolhapur Irrigation Department, but the actual working staff of the department numbers only 503. The shortage of working staff can have an adverse effect on the efficiency of the irrigation department.
Objectives of the Study: 1. To study the relative development of different sources of irrigation in the study area.
The Functions of the Kolhapur Irrigation Department:
2. To assess the performance of the Irrigation Department of Kolhapur.
1. 2. 3. 4.
3. To suggest proper policy implications for better management of irrigational facilities in the study area. Methodology:
To maintain and repair irrigation projects The management of Irrigation water To provide water to the farmers on demand. To collect water bills from the beneficiaries.
Irrigation Projects under the Kolhapur Irrigation Department:
Historically, Kolhapur is one of the agriculturally rich districts in the state of Maharashtra. It is indeed a matter of India attained independence in 1947 and the princely state of pride that the district has 16 rivers and huge water source for Kolhapur was merged into the Union of India in 1949. The all activities. Since Kolhapur has a huge water potential, and it Maharashtra State Irrigation Commission was constituted in happens to be the researcher's home district as well, the 1960. The commission had made extensive recommendations Kolhapur district has been selected as study area for the for enhancing the irrigation potential in the state. present research work on convenient basis. The secondary data on performance indicators of the Kolhapur Irrigation Accordingly the four major irrigation projects (those having a Department have been collected from various reports and command area of more than 10,000 hectares) and ten medium other official records of the Kolhapur Irrigation Department irrigation projects (2000 to 10,000 hectares) and around 200 for a period of ten years viz., 1995-96 to 2004-05 for studying minor irrigation projects (less than 2000 hectares) were the above cited objectives. Basically, the researcher has planned in Kolhapur district. The current status of the Major, employed a single equation method i.e. trend fitting. Along Medium and Minor irrigation projects of the study area is with this single equation technique, tabular analysis, ratio given in Table No. 1 analysis, and growth rates have been used to analyze the data Table No. 1 Irrigation Projects in the Kolhapur Irrigation Department Year
Major Project
Medium Project
Minor Project
Wells
1995-96
4
03
19
10,979
1996-97
4
03
24
10413
1997-98
4
03
25
10745
1998-99
4
03
30
12428
1999-00
4
03
42
12958
2000-01
4
03
43
13102
2001-02
4
03
43
16436
2002-03
4
11
47
16436
2003-04
4
11
47
16436
2004-05
4
11
47
16436
Source: The Office records of the Kolhapur Irrigation Department
An Economic Assessment of the Kolhapur Irrigation Department —Basavraj S. Benni
44 The Major Irrigation Projects:
Kolhapur district has four (04) major irrigation projects under the management of Kolhapur Irrigation Department. The details of these four projects are as follows:
Panhala - 02, Bhudargad - 02, Radhanagari - 01, Shahuwadi 06, Gaganbavada - 03, Gadhinglaj - 06, Hatkanangale - 02.
Table No. 2 Major Irrigation Projects under the Kolhapur Irrigation Department Major Irrigation Projects Tulshi Project
Tillari HydroElectric Project
Kalamawadi Project
Warana Project
River
Tulshi
Tillari
Dudhaganga
Warana
Completed in
1978
1986
2004
2006
650.36
4345
79865
111786
Height (mts)
48.6
38
73.08
77
Capacity (MCM)
98.29
464.19
719.12
974.20
Irrigation Potential (In Hectares)
5711
8005
93209
146865
Actual irrigated area (In Hectares)
2215
2034
16806
12950
Major projects
Cost (Rs. Lakh)
Source: The Office records of the Kolhapur Irrigation Department Kolhapur Type Weirs [KT weirs]
The Medium Irrigation Project: The Kolhapur Irrigation Department has eleven (11) medium irrigation projects under its management. The details of these eleven projects are as follows:
Table No. 3 Medium Irrigation Projects under the Kolhapur Irrigation Department River
Cost (Rs. in Lakh)
Irrigation Potential (In Hectares)
Actual irrigated area (In Hectares)
Kasari
2895
12141
2096
Kumbhi project
Kumbhi
6863
10189
1954
Kadvi project
Potphuji
7379
9908
1755
Patagaon Project
Vedganga
6367
10882
5986
Chitri
8924
13085
2570
Chikotra Project
Vedganga
12134
7888
406
Jangamhatti Project
Tamrapani
2632
4952
523
Jambre Project
Tamraperni
6603
6642
2515
Ghatprabha Project
Ghatprabha
3947
7695
1235
Hiranyakeshi
4596
9900
1285
Dhamni
17639
2500
456
Medium projects Kasari Project
Chitri Project
Hiranyakeshi Project Dhamni Project
Source: The Office records of the Kolhapur Irrigation Department The Minor Irrigation Projects:
Percolation Tanks:
The Kolhapur Irrigation Department has 45 minor irrigation projects for management. Their taluka-wise distribution is as follows Chandgad - 09, Ajra - 03, Karveer - 05, Kagal - 06,
The Kolhapur Zilla Perishad has constructed 55 percolationtanks at the cost of Rs. 277.57 lakh for bringing 4564 hectares land under irrigation. The Zilla Perishad has
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
also commissioned 28 lift irrigation schemes at the cost of Rs. 39.44 lakh for irrigating 2,456 hectares of land. Gross Irrigated Area and Gross Cropped Area: The gross cultivated area and gross irrigated area in Kolhapur district from 1995-96 to 2004-05 are presented in Table No. 4. It is very clear from Table No. 4 that the gross cropped area in the study area has been more or less the same for the last ten years. But the gross irrigated area had shown the positive trend and it increased by 43.66 percent. The ratio of gross irrigated area to gross cropped area in 1995-96 was 16.08 that
45
Irrigated Area: The Irrigation Potential area depends on rainfall in the district and the reserve capacity of the irrigation projects such as major, medium and minor irrigation projects etc. Kolhapur district has 16 rivers, 04 major, 11 medium and 47 minor irrigation projects. Thus the Kolhapur district has a huge water storage and reservoir. Table No. 5 reveals the percentage of the actually irrigated area to the total irrigation potential area created under different irrigation projects in the jurisdiction of the Kolhapur Irrigation Department.
Table No. 4 Gross Irrigated Area as Percentage of Gross Cropped Area Year
Gross Cropped Area (in hectares)
Gross Irrigated Area. (in hectares)
Gross Irrigated Area % Of Gross Cropped Area
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Maximum Minimum Average
5,24,000 5,03,000 5,36,000 5,27,000 5,20,000 5,35,000 5,23,000 5,64,000 5,64,000 5,22,160 5,64,000 5,03,000 5,31,816
84,253 90,127 96,692 99,632 99,361 98,699 97,268 97,268 97,305 1,21,043 1,21,043 84,253 9,81,648
16.08 17.92 18.04 18.91 19.11 18.45 18.60 17.25 17.25 23.18 23.18 16.08 18.47
Source: The Office records of the Kolhapur Irrigation Department
increased to 23.18 per cent in 2004-05. It is very interesting to note that though, historically Kolhapur is agriculturally rich, only 23.18 percent of gross cropped area was under irrigation. The Irrigation Potential Area Created & the Actual
Table No. 5 shows that the percentage of actual irrigated area to the irrigation potential created has decreased over the ten year period. It was 61.19 percent in the year 1995-96 and 29.96 percent in the year 1999-00. However, the same increased to
Table No. 5 Potential and Actual area Irrigated under Different Irrigation Projects in the Jurisdiction of the Kolhapur Irrigation Department (In hectares) Year Total Irrigation Potential Total Actual Percent of Actual Irrigated Created Area Irrigated Area Area to Irrigation Potential 1995-96 1,07,275 74,223 61.19 1996-97 1,10,960 80,236 72.31 1997-98 1,91,599 86,088 44.93 1998-99 2,79,813 88,827 31.75 1999-00 2,94,203 88,135 29.96 2000-01 2,33,953 87,612 37.45 2001-02 2,01,220 88,299 43.88 2002-03 2,81,505 89,665 31.85 2003-04 2,89,795 86,398 29.81 2004-05 2,58,405 1,10,717 42.84 Average 2,24,873 88,020 42.59 Source: The Office records of the Kolhapur Irrigation Department
An Economic Assessment of the Kolhapur Irrigation Department —Basavraj S. Benni
46
37.45 percent in the year 2000-01, 43.88 percent in 2001-02. It decreased in the years 2002-03 and 2003-04, but had increased to 42.84 percent in the year 2004-05. During the last ten years, the maximum percentage of actual irrigated area to irrigation potential was 72.31 percent and the minimum was 29.81 percent. The average percentage of actual irrigated area of irrigation potential created area was 42.59 percent
Users' Associations in Kolhapur district. The policy seeks mainly; i)
To reduce the gap between the irrigation potential created and the actual area irrigated ii) To increase water use efficiency of irrigation management iii) To restrict expenditure on maintenance and repairs of irrigation system and iv) To recover Government water charges effectively.
There are various reasons for underutilization of irrigation potential area created. These are as follows: 1) some farmers in the study area have their own wells and tube wells and therefore they do not demand water for irrigation from the irrigation department, 2) certain area taken under potential created area is not under cultivation and 3) in the years 200204, there were good rains in the study area.
Economics of the Kolhapur Irrigation Department: While calculating the economic returns of the Kolhapur Irrigation Department, one has to take into account the establishment cost of the irrigation project. In this paper however, water bill was taken as the income of irrigation department and administrative and repair and maintenance expenses as the cost.
Numbers of Beneficiaries under the Kolhapur Irrigation Department: The number of individual beneficiaries under the Kolhapur Irrigation Department was 30,565 in the year 1995-96 which increased to 4,89,088 in 2004-05. The net growth rate over the ten years was 15 percent. There were 315 co-operative lift irrigation societies in Kolhapur district in 2004-05. Their taluka-wise distribution is as follows Ajra - 06, Karveer - 76, Panhala - 27, Radhanagari - 39, Shahuwadi - 12, and Hatkanangale -119.
Water Bill Assessment and Bills Dues of the Kolhapur Irrigation Department: The government decides the charges of irrigation as per the norms recommended by the finance commission, the Irrigation commission and the national irrigation policy. The charges of irrigation water are varied according to the cropping pattern, actual area under irrigation. Table No. 6 reveals the assessment of the water bills in the jurisdiction of the Kolhapur Irrigation Department. It is seen from Table No. 6 that the total assessment of water charges of the irrigation department had shown positive trend,
The state government took a policy decision on 23rd July, 2001 for the formation of the Co-operative Water Users' Associations (WUAS). There are only 3 Cooperative Water
Table No. 6 Assessment of the Water Bills in the jurisdiction of the Kolhapur Irrigation Department Year
Water Bill Assessment in Agriculture Sector
Water Bill Assessment in Non-Agriculture Sector
Total
1995-96
376.6 (60.96)
241.21 (39.04)
1996-97
308.66 (47.44)
342.01 (52.56)
1997-98
515.37 (62.26)
1998-99
[in lakh]
Growth rate
Estimated assessment Y^
617.81 (100)
-
472.41
650.67 (100)
5.31
751.52
312.44 (37.74)
827.81 (100)
27.22
1030.67
583 (53.28)
511.22 (46.72)
1094.22 (100)
32.18
1309.79
1999-00
1076.50 (56.26)
837 (43.74)
1913.50 (100)
74.87
1588.92
2000-01
850 (49.26)
875.67 (50.74)
1725.67 (100)
-9.81
1868.05
2001-02
1178.94 (44.06)
1497.08 (55.94)
2676.02 (100)
55.07
2147.18
2002-03
1308.03 (57.46)
968.21 (42.54)
2276.24 (100)
-14.93
2426.31
2003-04
1323.64 (51.35)
1253.94 (48.65)
2577.68 (100)
13.23
2705.44
13.49
2984.57
2004-05
1445.80 (49.42)
1479.51 (50.58)
2925.31 (100)
Maximum
1445.80
1497.08
2925.31
2984.57
Minimum
308.66
241.21
617.81
472.412
Average
896.64
831.83
1728.49
1728.49
Y= a + b (T)
Y= 193.28 + 279.13 (T)
Source: The Office records of the Kolhapur Irrigation Department
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
because the water charges were increased by 10 percent every year. The amount of the assessment was Rs. 617.81 lakh in the year 1995-96 and it increased to Rs. 2925.31 lakh in the year 2004-05. The share of the agriculture sector in the total assessment was 60.96 percent in the year 1995-96 and it decreased to 49.42 percent in the year 2004-05. In the total assessment, the contribution of non-agriculture sector was 39.04 percent in the year 1995-96 and it increased to 50.58 percent in the year 2004-05. The growth rate of the total assessment of the water bills was positive over the ten years except for years the 2000-01 and 2002-03. The average value of assessment of water bills in agriculture sector was Rs. 896.64 lakh, and Rs. 831.83 lakh in nonagriculture sector. The overall average value of the total assessment of water bills of the Kolhapur Irrigation Department was Rs. 1728.49 lakh. The estimated values have a positive trend.
47
Dues of water charges in the jurisdiction of the Kolhapur Irrigation Department: Table No. 7 shows the dues of water charges in the agriculture and non-agriculture in jurisdiction of the Kolhapur Irrigation Department. From Table No. 7 it is clear that the total dues of water bills increased over time. In the year 1995-96, the amount of over dues was Rs. 2333.39 lakh and it increased to Rs. 8015.04 lakh in the year 2004-05. Dues of water bills in agriculture sector were 90.50 percent in the year 1995-96 and decreased to 74.56 percent in the year 2004-05. In the year 1995-96, the dues in non-agriculture sector were 9.50 percent and increased to 25.44 percent in the year 2004-05. The growth rate of dues of water bills was positive for all the years, except for one year. There are several reasons for high amount of dues of water bills in the study area. Some of them being non-cooperative nature of the water users, inefficient way of recovery of water
Table No. 7 Dues of water charges in the jurisdiction of the Kolhapur Irrigation Department Year
[ Rs. in lakh]
Value of Water Bill Dues in Agriculture Sector
Value of Water Bill Dues in Non-Agriculture Sector
Total dues of the Irrigation department
Growth rate
2111.63
221.76
2333.39
-
(90.50)
(9.50)
(100)
2361.67
307.74
2669.41
(88.47)
(11.53)
(100)
2198.42
426.43
2624.85
(83.75)
(16.25)
(100)
2369.14
474.23
2843.37
(83.32)
(16.68)
(100)
2562.49
570.37
3132.86
(81.79)
(18.21)
(100)
3283.33
772.30
4055.63
(80.96)
(19.04)
(100)
3655.67
1097.35
4753.02
(76.91)
(23.09)
(100)
4323.18
1856.40
6179.58
(69.96)
(30.04)
(100)
5202.43
1737.86
6940.29
(74.96)
(25.04)
(100)
5976.38
2038.66
8015.04
(74.56)
(25.44)
(100)
Maximum
5976.38
2038.66
8015.04
-
Minimum
2111.63
221.76
2333.39
-
Average
3404.43
950.32
4354.74
-
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Source: The Office records of the Kolhapur Irrigation Department
14.40 -1.66 8.32 10.18 29.45 17.19 30.01 12.31 15.48
An Economic Assessment of the Kolhapur Irrigation Department —Basavraj S. Benni
48
Table No. 8 Total Assessment and dues of water bills of the Kolhapur Irrigation Department [Rs. in lakh] Year
Total Assessment
Total Dues
Total Assessment & Dues
Estimated Assessment & Dues ( Y^)
1995-96
617.81
2333.39
2951.20
1951.07
1996-97
650.67
2669.41
3320.08
2869.33
1997-98
827.81
2624.85
3452.66
3787.59
1998-99
1094.22
2843.37
3937.59
4705.84
1999-00
1913.50
3132.86
5046.36
5624.10
2000-01
1725.67
4055.63
5781.30
6542.36
2001-02
2676.02
4753.02
7429.04
7460.62
2002-03
2276.24
6179.58
8455.82
8378.88
2003-04
2577.68
6940.29
9517.97
9297.14
2004-05
2925.31
8015.04
10940.35
10215.40
Maximum
2925.31
8015.04
10940.35
10215.40
Minimum
617.81
2333.39
2951.20
1951.07
Average
1728.49
4354.74
6083.23
6083.23
Y= a + b (T), Y= 1032.815 + 918.2586 (T) Source: The Office records of the Kolhapur Irrigation Department bills from the beneficiaries, lack of clean administration, transparency and accountability in the department. Total Assessment and Dues of Water Bills of the Kolhapur Irrigation Department: Table No. 8 reveals the total assessment and dues of water bills of the Kolhapur Irrigation Department. From Table No. 8 it is clear that the total amount of assessment and dues of water bills increased over the ten years period. The total amount of assessment and dues of water bills was Rs. 2951.20 lakh in the year 1995-96 and that had increased to Rs. 10940.35 lakh in the year 2004-05. The average value of total amount of assessment and dues of water bills was Rs. 6083.237 lakh. Water bills actually collected from the agriculture sector and non-agriculture sectors: Table No. 9 reveals the water bills actually collected from the agriculture and non-agriculture sectors. Table No 9 shows that the amount of water bills actually collected from the agriculture and non-agriculture sectors increased over the ten years period. The total collected amount of water bills in the department was Rs. 281.86 lakh in the year 1995-96 and which increased to Rs. 2403.88 lakh in the year 2004-05.
The share of actually collected amount from agriculture sector in the total collected water bills in 1995-96 was 44.90 percent which decreased to 30.07 percent in the year 2004-05. In case of the non-agriculture sector, the share of actually collected amount was 55.10 percent in 1995-96 which increased to 69.93 percent. Still the overall average for ten years shows the share of the agriculture sector in the total actual collected water bills was less than the share of non-agriculture sector. The estimated value of the total actual collected amount of water bill was Rs. 1874.82 lakh in the year 2004-05 and the minimum was Rs. 283.07 lakh in the year 1995-96. The average value of the estimated total actual collected amount from agriculture sector was Rs. 1078.94 lakh. Ratio of Actual Collected Water Bills to Total Assessment and Dues: Table No. 10 reveals the actual collected water bills as percentage of total assessment and dues. Table No. 10 shows the proportion of the actual water bills collected to the total amount of dues and assessment was only 9.55 percent in the year 1995-96 which increased to 21.97 percent in the year 2004-05. The net growth rate of actual water bills collected was 130 percent. The overall average of the actual water bills collected to the total amount of dues and assessment for ten years was 17.5 percent.
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
49
Table No. 9 Water bills collected actually from agriculture sector and non-agriculture sector (Rs. in lakh) Year
Value of Water Bill Dues in Agriculture Sector
Value of Water Bill Dues in Non-Agriculture Sector
126.56
155.30
281.86
283.07
(44.90)
(55.10)
100
(100)
471.91
223.32
695.23
459.93
(67.88)
(32.12)
100
(100)
344.65
264.64
609.29
636.79
(56.57)
(43.43)
100
(100)
389.65
415.08
804.73
813.65
(48.42)
(51.58)
100
(100)
355.56
635.38
990.94
990.51
(35.88)
(64.12)
100
(100)
477.56
550.62
1028.18
1167.38
(46.45)
(53.55)
100
(100)
511.43
738.03
1249.46
1344.24
(40.93)
(59.07)
100
(100)
428.88
799.01
1227.89
1521.10
(34.93)
(65.07)
100
(100)
549.69
948.34
1498.03
1697.96
(36.69)
(63.31)
100
(100)
722.73
1681.15
2403.88
1874.82
(30.07)
(69.93)
100
(100)
Maximum
722.73
1681.15
2403.88
1874.82
Minimum
126.56
155.3
281.86
283.07
Average
437.86
641.08
1078.94
1078.94
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Total collected amount Estimated total collected of water bill amount of water bill ('Y')
Y= a + b (T) Y= 106.21 + 176.86 (T) Source: The Office records of the Kolhapur Irrigation Department
Expenditure of the Kolhapur Irrigation Department: The irrigation department has to incur expenditure mainly on two items namely : 1) Administrative expenditure and 2) Maintenance and repairing expenditure of the irrigation projects. The administrative expenditure includes the wages of the employees, electricity bills; stationery expenditure, travelling allowances, advertisement expenditure. Table No. 11 reveals the expenditure of the Kolhapur Irrigation Department. Table No. 11 shows that the administrative expenditure was 59.61 percent of the total in the year 1995-96 and the expenditure incurred on the maintenance and repairs of the irrigation project was 40.39 percent. In the year 1998-99 the administrative expenditure increased to 79 percent and then decreased continuously, except in the year 2002-03.
The total expenditure of the irrigation department increased from Rs. 687.64 lakh to Rs. 1233.66 lakh over the ten years. However, the expenditure on administration was more than the maintenance and repairs. The average value of the administrative expenditure of the Kolhapur Irrigation Department was Rs. 621.64 lakh. The average value of the maintenance and repairs expenditure was Rs. 316.84 lakh. The overall average value of the total expenditure of the department for ten years was Rs. 938.49 lakh. The reasons for the increased expenditure of the department were: 1) increase in the salaries of the staff and 2) Due to increase in the material cost of the irrigation equipments required for maintenance and repairs. Profit of the Kolhapur Irrigation Department: The profit of the Kolhapur Irrigation Department is given in
An Economic Assessment of the Kolhapur Irrigation Department —Basavraj S. Benni
50
Table No 10 Actual collected water bill percentage of Total assessment & Dues [Rs. in lakh] Year
Total Amount of Assessment & Dues
Total Collected Amount of Water Bills
Percentage
1995-96
2951.2
281.86
09.55
1996-97
3320.1
695.23
20.94
1997-98
3452.7
609.29
17.64
1998-99
3937.6
804.73
20.43
1999-00
5046.4
990.94
19.63
2000-01
5781.3
1028.2
17.78
2001-02
7429.0
1249.5
16.81
2002-03
8455.8
1227.9
14.52
2003-04
9518.0
1498.0
15.73
2004-05
10940.0
2403.9
21.97
Average
6083.21
1078.95
17.50
Source: The Office records of Kolhapur Irrigation Department Table No. 12 Table No 12 shows that out of the ten years, the department had suffered losses in four different years. The loss of the department was Rs. 405.78 lakh in the year 1995-96 and which decreased to Rs. 30.53 lakh in the year 2000-01. The overall average profit of the department was positive and it amounts to 140.46 lakh.
Conclusions: 1. The percentage of the gross irrigated area to the gross cropped area in the Kolhapur district increased, but the growth rate was not satisfactory.
Table No. 11 Total Expenditure in the jurisdiction of the Kolhapur Irrigation Department [Rs. in lakh] Year
Administrative expenditure
Maintenance & Repairing
1995-96
409.93 (59.61)
277.71 (40.39)
687.64 (100)
628.09
1996-97
344.30 (60.00)
229.88 (40.00)
574.18 (100)
697.07
1997-98
492.74 (53.63)
426.09 (46.37)
918.83 (100)
766.04
1998-99
438.85 (78.78)
118.21 (21.22)
557.06 (100)
835.02
1999-00
780.33 (76.16)
244.30 (23.84)
1024.63 (100)
904.00
2000-01
740.78 (70.00)
317.95 (23.84)
1058.73 (100)
972.98
2001-02
750.63 (66.40)
379.86 (30.00)
1130.49 (100)
1041.96
2002-03
762.13 (73.59)
273.63 (26.41)
1035.76 (100)
1110.94
2003-04
760.20 (65.32)
403.74 (34.68)
1163.94 (100)
1179.92
2004-05
736.56 (59.71)
497.10 (40.29)
1233.66 (100)
1298.90
Maximum
780.33
497.1
1233.66
1298.9
Minimum
344.3
118.21
557.06
628.09
Average
621.64
316.84
938.49
943.49
Total expenditure Estimated expenditure Y^
Y= a + b (T) Y=559.10 + 68.97 (T) Source:-Office records of Kolhapur Irrigation Department, Note:-The figures in ( ) indicate the percentage
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51
Table No. 12 Profit of the Kolhapur Irrigation Department [Rs. in lakh] Year
Total collected amount of water bills
Total expenditure
Profit or loss of the Irrigation department
1995-96
281.86
687.64
-405.78
1996-97
695.23
574.18
121.05
1997-98
609.29
918.83
-309.54
1998-99
804.73
557.06
247.67
1999-00
990.94
1024.60
-33.69
2000-01
1028.20
1058.70
-30.53
2001-02
1249.50
1130.50
119.01
2002-03
1227.90
1035.80
192.14
2003-04
1498.00
1163.90
334.06
2004-05
2403.90
1233.70
1170.24
Maximum
2403.90
1233.70
1170.24
Minimum
281.86
557.06
-405.78
Average
1078.96
938.49
140.46
2. The Kolhapur Irrigation Department was not at optimal stage in terms of use of potential irrigation capacity. There is a difference between the total irrigation potential area created and the actual area irrigated in the jurisdiction of the Kolhapur Irrigation Department. 3. The recovery of water bills was not effectively operated by the Kolhapur Irrigation Department and that resulted in an increase in the percentage of overdues of the department. 4. The total expenditure of the Irrigation Department increased during the 10 years period. 5. The administration expenditure of the irrigation department was comparatively greater than the expenditure on maintenance and repairs.
5.
The department should make special efforts to increase the number of cooperative Water Users' Associations.
6.
There should be a link and proper coordination between the financial credit institutes, the output marketing institutes and the irrigation department for an effective recovery of water bills.
If the above suggestions are incorporated in the policy formulation for the better performance of the irrigation department, it should improve the welfare of all working farmers in general and the marginal farmers in particular and would result in a substantial reduction in the gap between the potential area and the actual area which will further result in a better socio-economic life for the farming community of rural communiting.
Suggestions: 1. All posts sanctioned for the department must be filled for effective functioning of the irrigation department. 2. Steps should be taken by the department for giving more water lifting permission to the farmers. 3. The leakages of the irrigation projects should be repaired early by the irrigation department and the government also should give necessary funds to the irrigation department. 4.
The irrigation department should make efforts to reduce the gap between the potential area created and the actual area used.
References: Bhatt, (eds) (1998), “Encyclopaedic District Gazetteers of India”, Western Zone, Vol. No. 07, Gyan Publishing House, New Delhi,
52
An Economic Assessment of the Kolhapur Irrigation Department —Basavraj S. Benni
Dillip Kumar and Majumdar K. (2002) “Irrigation Water Management”, Prentice Hall of India Private Limited, New Delhi. Government of Maharashtra (1995), “District Census Handbook Kolhapur”, Published by the Director of Census Operations, Government Printing and Stationary, Maharashtra State, Mumbai. Government of Maharashtra(1996), “Statistical Abstract of Maharashtra State-1991-2001, Directorate of Economic and Statistics, Maharashtra State, Mumbai. Government of Maharashtra, Economic Survey of Maharashtra 1997-98 and 2004-05. Government of Maharashtra, Office records of Kolhapur Irrigation Department. Indian Agriculture (2005), Centre for Monitoring Indian Economy, March. Kar Gouranga (2000), “Role of Remote Sensing for Integrated Sustainable WaterShed Management.” Kisan World, Vol. 27, No. 2, December. Michael A.M (1999), “Irrigation-Theory and Practice”, New Delhi, Vikas Publishing House. Narayanamoorthy (2001), “Irrigation & Rural Laverty Nexus: A state wise Analysis” Indian Journal of Agricultural Economics, Vol. 56, No. 1, Jan-March . Narayanamoorthy (2005), “Economics of Drip Irrigation in sugarcane cultivation: case study of a farmer from Tamil Nadu.” Indian Journal of Agricultural Economics Vol. 60, No. 2, April-June . O. W.Israelsen and V. E. Hansen (1962), “IrrigationPrinciples and Practice” (Third Edition).
ISSN No. : 0974-0597
Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
Study on the Influence of Demographic Factors on Brand Switching Behaviour of Subscribers of GSM Mobile Services in Pune City Chaudhari Chetan1
Abstract:
Introduction:
Mobile service is one of the fastest growing sectors in India. With the economy opening up, competition in this sector is increasing. Heavy competition among the service providers has accelerated brand switching among the subscribers. However, it may be worthwhile to examine the influence of demographic factors on the brand switching behaviour of the subscribers of mobile services. This would assist various companies to formulate new strategies based on demographic factors to retain customers. This research proposes to study the influence of demographic factors such as age, gender, marital status, education, occupation and family income on brand switching behaviour of subscribers of GSM mobile services. A questionnaire is used as an instrument to collect primary data from a sample size of 150 respondents. This research also includes the study of brand switching behaviour of subscribers to identify different patterns in it.
An Overview of Indian Telecom Industry:
Keywords: Brand Brand switching behaviour Mobile users Demographic factors Brand shifting Churn rate Telecom services Mobile subscribers.
Telephone services in India began on a small scale with the commissioning of a 50-line manual telephone exchange in 1882 in Kolkata. This was less than five years after the invention of the telephone by Alexander Graham Bell. India had approx. 82,000 telephone connections at the time of independence (1947) and by 1984 the number of connections had gradually risen to 3.05 million. India's telecom network was notoriously unreliable and only available to a small section of the households along with the corporate sector. The telecom sector was a government monopoly until 1994 when liberalisation gradually took place. Cellular service was launched in November 1995 in Kolkata. Expanding Network: The Indian telecom industry has grown rapidly during the last few years. India has the third largest telecom network in the world (based on the total number of fixed/mobile subscriber lines) and the second¹ largest mobile network with over 325² million subscribers at the end of July '09. The total number of telephone lines had increased to over 400 million at the same time. While subscriber volumes continue to grow in the four metros (Mumbai, Delhi, Kolkata and Chennai) as well as in other major cities, the real growth potential is in rural India comprising of over 600,000 villages. While anywhere between 7-9 million new mobile subscribers are being added every month, India, along with China, is the world's largest market in terms of the number of new mobile subscribers added. The number of landlines is gradually decreasing. Overall, teledensity grew to 27.2 % by the end of July' 09. The Indian mobile connection market continues to be dominated by prepaid subscribers.Prepaid connections accounted for 89 percent of all mobile connections in 2007 and are expected to grow to more than 92 percent of the connection base by 2012. The churn rate in India is 41.0 percent (2008), and despite a maturing market the ratio is expected to go up to 49 percent in 2012. What is GSM?
1. Asst. Professor Sinhgad Institute of Management, Vadgaon (Bk.),Pune - 41 Email:
[email protected]
Mobile technology is expanding very rapidly in the world. Many people around the world subscribe to mobile services.
54
Study on the Influence of Demographic Factors on Brand Switching Behaviour of Subscribers of GSM Mobile Services in Pune City —Prof. Chetan Chaudari
There are two different technologies used in mobile phones, GSM and CDMA. All the phones generally operate on either GSM technology or on the CDMA technology. These represent the second generation of cellular telephone system devoted to solve fragmentation problems. Such technology provides the facility of a wide range of network services. Table 1 Group company-wise market share in India, as on July 2009 Name of the Company
Total Subscribers Percentage Market Share (in crores)
Bharti Airtel Vodafone Essar BSNL IDEA Aircel Reliance Telecom MTNL Loop Mobile All India
Review of Literature: The American Marketing Association defines brand as 'a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors’ Bass, 1974 states that, if a brand switch occurs “as-ifrandom”, that is, for primarily stochastic reasons, then the switch is beyond the control of the service provider. For example, the switch may have occurred because switchers have shifted location As Hauser and Wernerfelt (1990) claim, the probability of a brand being included in a consideration set is a trade-off between costs and benefits. Utility maximization presumes that consumers are consistently searching for a better utility and when they succeed, will switch brands.
10.51 7.86 5.07 4.85 2.31 1.28
32.29 24.16 15.57 14.90 7.09 3.94
2.35 32.57
0.72 100.00
Group company wise market share as 31/5/2008 Graph 1
Kotler (1995) and Aaker (1995) define a brand on different levels, stating that a brand is not merely the physical product, but is also composed of brand attributes, symbols, brand-consumer relationships, benefits of self-expression, customer profiles, associations with the culture of the country of origin, and corporate identity. In essence, the brand provides a simple means for the customer to distinguish it from its peers. According to Aaker (1995), a powerful brand enjoys a high degree of brand loyalty. Related brand choice theories claim that, in order to increase the sales volume or marketing shares of a particular brand of products, it is necessary to either strengthen the brand loyalty of existing customers or try to persuade the consumers of other brands to switch over. The former is called inertia or brand loyalty, and the latter, brand switching. There have been several models developed to predict brand switching and the consequences of a brand switch. Keaveney's (1995) study was based on service industries as diverse as travel agents, banks and phone companies, collecting data on 468 critical incidents.
Subscribers (Nos)
Vodaphone
Reliance
Tata Indicom
BSNL
Airtel
Company
Idea
Table 2 Total Number of cellular services subscribers in Maharashtra = 2.19 Crores
52.21 43.45 31.47 31.24 30.92 29.20
(Figures in Lacs) *Source www.trai.com
Each critical incident was then coded into 838 separate critical behaviours, then further sorted into eight categories of customer switching behaviour: pricing, inconvenience, core service failures, service encounter failures, employees' responses to service failure, attraction by competitors, ethical problems and involuntary incidents. These categories can be used to identify reasons for brand switching and can be easily grouped into three categories (utility maximisation, expectation disconfirmation, stochastic reasons) derived from repertoire market analyses. Ehrenberg et al. (1997) asserted that salient brands are high in both intention to buy the brand and brand loyalty. They further argued that the main function of advertising is to reinforce an existing consumer's propensity to buy a particular brand. Sometimes known as brand jumping, brand switching is the process of choosing to switch from routine use of one
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
55
product or brand to steady usage of a different but similar product. Much of the advertising process is aimed at encouraging brand switching among consumers, thus helping to enhance the market share for a given brand or set of brands.
Howell, 2004 on the other hand maintained that brand switching occurs due to a slight decline in brand loyalty and growing acceptance of other brands, which loosen up the consumer's willingness to try alternative brands
According to Churchill and Suprenant (1982); Oliver and De Sarbo (1988); Wirtz(1993); Zeithaml, 2000, Ganesh, Arnold and Reynolds (2000) expectation disconfirmation has been proffered as a substantial cause of brand switching In this paradigm, consumers evaluate consumption experiences and make satisfaction decisions by comparing perceived performance with some consumption standard. For example if the levels of service provided by their bank branch do not meet their expectations then a brand switch may take place.
Wangenheim and Bayon (2004) conducted a study on the effect of word of mouth on services switching. Their objective was to identify variables that have an influence on the effect of WOMC on buying decision making, with specific regard to interactions between service category and communicator characteristics. They conducted interviews with 400 respondents, each from switcher and non-switcher energy customers resulting in 267 usable responses (i.e. 137 switchers and 130 non-switchers). The results showed that both source expertise and similarity have an effect not only on perceived influence and attitudes, but also on subsequent decision making.
Yi & Vanden Abeele (1989); Dabholkar (1994); Shoham et al. (1998). Conducted research on brand buying behaviour and brand switching .There are many theories that are available to explain how consumers make product and/or brand choices. The 'expectance-value model' argues that consumers assign scores to two parameters and make a mental calculation before making a decision. The first parameter is the degree to which consumers expect a pleasurable outcome. The second parameter is the value the consumers ascribe to a favourable outcome. This model is insufficient to explain the phenomenon because people have limited brand information and limited mental processing capabilities Spiros and Vlasis (1999) conducted an empirical study to investigate the antecedents and their consequences of brand loyalty. They had objectives of conceiving a better definition of brand loyalty and validating its operationalisation; to empirically examine the effects of brand loyalty on consumers behaviour. The study was conducted in Athens, Greece, with 850 randomly selected respondents. According to Lin et al. (2000) brand loyalty refers to the consumer's behaviour of repeatedly purchasing a specific brand over a certain period of time through conscious or unconscious decisions. Wangenheim and Bayon conducted a study in the German energy industry with the purpose of examining the difference between stayers, switchers and referral switchers. The sample included 367 switchers and 398 stayers. Their results showed that switchers differ from stayers in their higher levels of active loyalty and lower levels of loyalty. Referral switchers differ from other switchers with respect to their higher satisfaction, active loyalty. Within the group of switchers, the referral switchers represent a special customer group. They exhibit higher levels of satisfaction, active and reactive loyalty than the other switchers. They conclude that customer acquisition through referrals is a very important goal for companies, not only due to reduced costs of acquisition, but also because clients gained through referrals are easier to satisfy and retain.
According to Dr. Vinith Kumar Nair (2005) a recent industry survey on customer care carried out by IDC- Voice & Data Magazine, shows that Indian mobile users are not happy with the level of service they get. Their complaints cover the gamut of issues, from network availability and billing, to value-added services and customer care. The number of enquiries a call centre receives is two or three times more than the international norms. The national average waiting time to talk to customer care is 4.1 minutes. About 61 per cent of the respondents had to wait for up to 3 minutes whereas 14 per cent had to wait for more than 7 minutes. Objectives of the Study: 1. To study various demographic factors influencing brand switching behaviour of subscribers of GSM Cellular services. 2. To study the brand switching behaviour of the subscribers of GSM Cellular services Hypotheses : The following hypotheses are framed in tune with the objectives H1: Brand switching behaviour of GSM service subscribers is dependent of their gender. H2: Brand switching behaviour of GSM service subscribers is dependent of their age H3: Brand switching behaviour of subscribers is dependent of their marital status H4:Brand switching behaviour of GSM subscribers is dependent of their educational background H5: Brand switching behaviour of GSM service subscribers is dependent of their occupation. H6:Brand switching behaviour of subscribers of GSM cellular services is dependent of their family income.
56
Study on the Influence of Demographic Factors on Brand Switching Behaviour of Subscribers of GSM Mobile Services in Pune City —Prof. Chetan Chaudari1
Research Design and Methodology:
It is observed from the analysis that-
Area of the study:
· 50 percent of the subscribers have not switched the brand of their GSM service provider.
The research study is restricted to Pune City in Maharashtra. This is a descriptive and cross sectional research carried out to identify the brand switching behaviour of the GSM subscribers. Structured Questionnaire is used to collect the primary data from 150 respondents. The main sources of secondary data are the websites and reports of TRAI, COAI, and various GSM Service providing companies like Vodafone, Bharati Airtel, Idea, Reliance, BSNL.
· 28 percent of the subscribers have changed the brand of their GSM service provider once. · 6.7 percent of the subscribers have changed the brand of their GSM service provider two & three times each. · 8.7 percent of the subscribers have changed the brand of their GSM service provider more than thee times.
Sampling Design: · Universe : All users of cellular services in Pune · Sampling Frame : Subscribers of GSM services with Pune as location of subscription · Sampling element : Subscribers of Only GSM cellular services · Sampling Technique : Convenience sampling · Sample size : 150 Respondents Tools applied:
Graph 2
The following statistical tools were applied. · Percentage analysis · Chi-square test All the tests were carried out at 5% level of significance. Limitations of the Study: The findings of the study depend purely on the responses given by the respondents in Pune City Graph 3
Data Analysis and Interpretation : Of the 150 respondents surveyed. · 43 percent were subscribers of idea mobile services · 32 percent were subscribers of Airtel mobile services · 11 percent were subscribers of Vodafone mobile services · 7 percent each were subscribers of Reliance and BSNL mobile services
Graph 2
Gender of the Subscriber and brand switching behaviour: Table 3 explains gender-wise brand switching behaviour of subscribers of GSM cellular services. Out of 150 sample size, 112 (74.67%) are male and the remaining 38 (25.33%) are female respondents. Fifty percent of the male and female respondents respectively have not switched their brand of GSM service provider since they started to use mobile phones, whereas 50 percent of the male and female respondents respectively have changed the brand of their mobile service provider. Though the percentage of male and female respondents in the not switching category is same, the percentage of male subscribers is more than the female subscribers for switching only once (30.4%) & switching more than three times (10.7%). Whereas the percentage of female subscribers are more than male subscribers in case of switching two times (10.5%) & three times (15.8%).
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
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Table 3 Cross Tabulation: Gender : Brand Switching Behaviour
Table 5 Cross Tabulation: Age : Brand Switching Behaviour
Brand of GSM Cellular Service Switched
Age
Brand of GSM Cellular Service Switched Total Not changed
Gender Not changed
Twice Thrice > Thrice Total
Once
Male 56 (50) 34 (30.4 ) 6 (5.4) 4 (3.6) 12 (10.7) 112 (100) Female 19 (50)
8 (21.1) 4 (10.5) 6 (15.8) 1(2.6)
Total 75 (50)
42 (28)
38(100)
10(6.7 ) 10(6.7 ) 13(8.7) 150(100)
Table 4 Chi-Square Test : Gender wise brand switching behaviour Value
df
Asymp. Sig. (2-sided)
Pearson Chi-Square 10.507
4
.033
Likelihood Ratio
10.023
4
.040
N of Valid Cases
150
< 15 yrs
1(50)*
Once
Twice Thrice > Thrice
0(0)
0(0)
31-45 yrs
33(55) 19(31.7) 2(3.3)
46 & above 20(83.3) 4(16.7) Total
2(100)
0(0)
3(5)
3(5)
60(100)
0(0)
0(0)
24(100)
75(50) 42(28) 10(6.7) 10(6.7)A 13(8.7) 150(100)
* Note : Figures in brackets are percentages to row totals. Table 6 Chi-Square Test: Age-wise brand switching behaviour df Asymp. Sig. (2-sided)
Pearson Chi-Square 32.376 12
.001
Likelihood Ratio
.001
N of Valid Cases
Age of the Subscriber and brand switching behaviour
0(0)
16-30 yrs 21(32.8) 19(29.7) 8(12.5) 6(9.4) 10(15.6) 64(100)
Value
As the significant value 0.33 obtained from Chi-square test is less than 0.05; the null hypothesis is rejected at 5% level of significance. Hence the research hypothesis (H1) stating brand switching behaviour of GSM service subscribers is dependent of their gender is accepted.
1(50)
33.950 12 150
The 'P' value (0.001) obtained from Chi-square test is less than 0.05; hence the null hypothesis is rejected at 5% level of significance. So the research hypothesis (H2) Brand switching behaviour of GSM service subscribers is dependent of their age is accepted. Marital status of the Subscriber and brand switching behaviour
Graph 4
Marital Status of the Respondent Unmarried 35%
Graph 5
Table 5 represents the relationship between age and brand switching behaviour of the subscribers. The subscribers in the age group of 16 to 30 years have changed their GSM service provider frequently compared to the subscribers in the more than 30 years age group. In the age group of 31 to 45 years 31.7 percent of the subscribers have shifted the brand of their service provider once.
Married 65%
Of the 150 respondents surveyed, 98 (65 percent) were married and the remaining 52 (35 percent) were unmarried. Table 7 throws light on the fact that unmarried subscribers have a greater tendency towards switching the brand of GSM service than have the married subscribers. Around 60.2 percent of the married subscribers have not changed their mobile service provider whereas 69.02 percent of the unmarried subscribers have switched their mobile service provider. The proportion of the married subscribers who have switched the brand of mobile service provider once is 28.6 percent, twice, 3.1percent; thrice, 3.1 percent and more than thrice 5.1 percent. The proportion of unmarried subscribers who have switched once is 26.0 percent; twice, 13.5 percent; thrice, 13.5 percent and more than thrice 15.4 percent.
58
Study on the Influence of Demographic Factors on Brand Switching Behaviour of Subscribers of GSM Mobile Services in Pune City —Prof. Chetan Chaudari1
Table 7 Cross Tabulation: Marital status: Brand Switching Behaviour Marital status
Table 9 Cross Tabulation: Education: Brand Switching Behaviour
Brand of GSM Cellular Service Switched Not changed
Once
Brand of GSM Cellular Service Switched Education Not changed
Twice Thrice > Thrice Total
Twice Thrice > Thrice Total
Once
98(100)
Primary Edu. 1(33.3)
1(33.3)
Unmarried 16(30.8) 14(26.9) 7(13.5) 7(13.5) 8(15.4) 52(100)
Secondary Edu. 25(67.6)
10(27)
Married 59(60.2)* 28(28.6) 3(3.1) 3(3.1) 5(5.1)
Total
75(50)
42(28) 10(6.7) 10(6.7) 13(8.7) 150(100)
* Note : Figures in brackets are percentages to row totals. Table 8 Chi-Square Test: Marital status wise brand switching behaviour Value
df Asymp. Sig. (2-sided)
Pearson Chi-Square 21.089
4
.000
Likelihood Ratio
20.632
4
.000
N of Valid Cases
150
0(0)
1(33.3)
0(0)
3
1(2.7) 1(2.7)
0(0)
37(100)
4(5.3)
75(100)
Graduation 34(45.3) 26(34.7) 5(6.7)
Post Graduation 14(42.4) 4(12.1) 4(12.1) 2(6.1) 9(27.3) 33(100) Doctorate
1(50)
1(50)
Total
75(50)
42(28) 10(6.7) 10(6.7) 13(8.7) 150(100)
0(0)
Of the 150 respondents 3 (2 percent) had primary educated; 37 (25 percent) secondary education, 75 (50 percent) were graduates, 33 (22 percent) were post graduates and 2 (1 percent) were doctorates. Nearly 55 percent of graduate respondents, 57.6 percent of post graduate respondents and 50 percent of the doctorate respondents had indulged in brand switching, which is comparatively higher than secondary educated respondents (Table 9). Educational background and brand switching behaviour of the GSM Subscribers
0(0)
2(100)
0(0)
Table 10 Chi-Square Test: Education wise brand switching behaviour Value
As the value of P (.000) obtained from Chi-square test is less than 0.05; the null hypothesis is rejected at 5% level of significance. Hence the research hypothesis (H3) stating Brand switching behaviour of GSM service subscribers is dependent of their marital status is accepted.
6(8)
df Asymp. Sig. (2-sided)
Pearson Chi-Square 33.098a 20
.033
Likelihood Ratio
.044
N of Valid Cases
31.935 20 150
By applying chi-square test with the significant value of .033, the hypothesis is accepted proving that brand switching behaviour of subscribers is dependent of their educational background. The occupation status of respondents has been grouped as businessmen 20 (13 percent), students 28 (19 percent), private employees 16 (10.5 percent), Govt employees 16 (10.5 Occupation and brand switching behaviour of the GSM Subscribers Graph 7
Occupation of Respondent Consultants 11%
Educational background of Respondents
Businessmen
Graduation 50 %
Graph 6
Post Graduation 22 % Doctorate 1% Pri. Edu. 2% Sec. Edu. 25 %
Real estate agents 11%
13% Students 19%
Govt. Employees 11% Housewives 13%
Private Employees Travel agents 11% 11%
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
Table 11 Cross Tabulation: Occupation: Brand Switching Behaviour Brand of GSM Cellular Service Switched Occu pation Not changed Once Twice Thrice > Thrice Total Businessmen Students Pvt. Employees
11 (55)*
5 (25)
2 (10) 2 (10)
0 (0)
20 (100)
4 (25)
0 (0)
0 (0)
0 (0)
16 (100)
1 (5.9) 15 (88.2) 1 (5.9)
0 (0)
0 (0)
17 (100)
Housewives
14 (73.7) 4 (21.1) 1 (5.3)
0 (0)
0 (0)
19 (100)
0 (0)
1 (5.9)
0 (0)
17 (100)
0 (0)
0 (0)
0 (0)
17 (100)
Real Estate Agents 12 (70.6) 4 (23.5) 15 (88.2) 2 (11.8) 75 (50)
Table 13 Cross Tabulation: Income: Brand Switching Behaviour
2 (12.5) 1 (6.2) 2 (12.5) 7 (43.8) 16 (100)
Travel Agents
Total
The respondents have been grouped according to their monthly family incomes, ranging from less than Rs. 10,000 (8 percent), Rs. 10,001 to Rs. 25,000 (46 percent), Rs. 25001 to Rs. 50,000 (29 percent) and more than Rs. 50,000 (17 percent) Seventy Five percent of the respondents whose family income was less than Rs. 10,000 have not switched the brand of mobile service provider whereas higher percentage of brand switching has been observed among the respondents belonging to moderate and high family incomes.
8 (28.7) 4 (14.2) 5 (17.8) 5 (17.8) 6 (21.4) 28 (100)
Govt. Employees 10 (62.5) 6 (37.5)
Consultants
59
42 (28) 10 (6.7) 10 (6.7) 13 (8.7) 150 (100)
* Note : Figures in brackets are percentages to row totals.
Brand of GSM Cellular Service Switched Family income Twice Thrice > Thrice Total /month Not changed Once < Rs. 9 (75) 3 (25) 10000 Rs.10001 32 (46.4) 23 (33.3) -25000 Rs.25001 26 (60.5) 9 (20.9) -50000 > 8 (30.8) 7 (26.9) 50000 Total
percent), travel agents 17 (11.5 percent), housewives 19 (13 percent), real estate agents 17 (11.5 percent) and consultants 17 (11.5 percent).
By applying chi-square test, with the significant value of .000 the hypothesis is accepted and it has been proved that brand switching behaviour of subscribers is dependent of their occupation. Value
df Asymp. Sig. (2-sided)
Pearson Chi-Square 1209E2 40
.000
Family income and brand switching behaviour of the Subscribers of Mobile Services Family income of Respondent ( Rs. per Month)
> Rs 50,000 17%
Rs. 25,001 to Rs. 50,000 29%
£ Rs 10,000
Graph 8
8% Rs. 10,001 to Rs. 25,000 46%
0 (0)
0 (0)
12 (100)
7 (10.1) 5 (7.2) 2 (2.9) 69 (100) 0 (0)
2 (4.7) 6 (14) 43 (100)
3 (11.5) 3 (11.5) 5 (19.2) 26 (100)
42 (28) 10 (6.7) 10 (6.7) 13 (8.7) 150 (100)
Table 14 Chi-Square Test: Income wise brand switching behaviour
* Percentages do not add upto 100 due to rounding off. Table 11 shows that 55 percent of the Businessmen, 62.5 percent of government employees, 73.7 percent of the housewives, 70.6 percent of the real estate agents and 88.2 percent of the consultants have not switched their brand of mobile service provider, whereas higher amount of brand switching is observed among students, private employees and travel agents.
75 (50)
0 (0)
Value
df Asymp. Sig. (2-sided)
Pearson Chi-Square 22.355a 12
.034
Likelihood Ratio
.007
N of Valid Cases
27.310 12 150
By applying chi-square test with the significant value of .034 which is less than 0.05; the null hypothesis is rejected at 5% level of significance. Hence the research hypothesis (H6) is accepted which proves that the brand switching behaviour of GSM service subscribers is dependent of their family income. Conclusion: This research is based on the response of 150 subscribers of which 50 percent have switched their brand of mobile service provider. The study reveals that, in general, the brand switching behaviour of the subscribers of the GSM cellular services is significantly dependent on the demographic factors such as age, gender, educational background, occupation and the family income of the respondents. ·
The percentage of male subscribers is greater, than that of female subscribers for switching only once and more than
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Study on the Influence of Demographic Factors on Brand Switching Behaviour of Subscribers of GSM Mobile Services in Pune City —Prof. Chetan Chaudari1
three times. However, the percentage of female subscribers who switched twice and three times, is greater than that of male subscribers. ·
Subscribers in the age group of 16 to 30 years have changed their GSM service provider frequently compared to those above 30 years.
Zealand Retail Banking, ANZMAC Conference: Services Marketing 135. 'Gartner Predicts Huge Growth of Indian Cellular Services Market by 2012', NWC News Network, July 2, (2008) Lin, Chinho ; Wu, Wann-Yih ; Wang, Zhi-Feng 22 Jun (2000), 'Study of market structure: brand loyalty and brand switching behaviours for durable household appliances', International Journal of Market Research, Publication .
·
Unmarried subscribers have greater tendency towards switching the brand of GSM service subscriber than the married ones.
·
Switching the brand of GSM mobile service provider is more often seen in highly educated subscribers than less educated ones.
Michaelidou, Nina and Dibb, Sally and Arnott, David (2005) 'Brand switching in clothing as a manifestation of varietyseeking behavior', Advances in Consumer Research: Asia Pacific Region, 6. pp. 79-85
·
Higher brand switching is observed among students, private employees and travel agents than businessmen, government employees, housewives, real estate agents and consultants.
Mohammad Mohsin Butt, Ernest Cyril de Run March (2008), 'Measuring Pakistani Mobile cellular customer satisfaction', ICFAI Journal of Services marketing.
·
High family income subscribers switch their brand of GSM mobile service provider more often than those among lower family income subscribers.
Richard Lee, Jamie Murphy, (University of Western Australia) (2005), “From Loyalty To Switching: Exploring The Determinants In The Transition”, ANZMAC Conference: Consumer Behaviour 200
The analysis and interpretation of the data of this research reveals that those subscribers in the age group of 16 to 30 years, who are single, post-graduated, are travel agents by occupation and whose months family income is more than Rs.50,000 show a grater likelihood of switching the brand of GSM mobile service provider. There are various reasons for which a subscriber may switch the brand of service provider. Although there are many reasons which initiate brand switching behaviour of the subscribers of mobile services, one can not neglect the demographic background of the subscriber and the role played by it in brand switching. The future will probably be more dynamic and challenging for the GSM cellular service providers as delivering excellent services to all the strata of the economy will ensure customer retention and in turn their market share. References: Ashish Sinha, Dec 11 (2007), 'Future of Mobile VAS in India: Rural IVR is the next opportunity', Indian Telecom Industry Ganguli Shrishendu September (2007), 'Drivers & effect of consumer satisfaction and other factors on churn among Indian cellular services users', ICFAI JSM. Girish Taneja , Neeraj Kaushik September (2007) 'Customers' perception towards mobile service providers : An analytical Study', ICFAI Journal of Services marketing. Gavin Lees, (Massey University), Ron Garland, (University of Waikato), Malcolm Wright, (2005), Victoria (University of Wellington) - “Brand Switching in New
Subhash JhaMarch (2008) 'Understanding mobile phone usage pattern among college goers', ICFAI Journal of Services marketing'. Sanjeev Kumar & Dr. Singh MRP 'Brand Aspiration & Brand switching behaviour of rural customers-A case study of Haryana'. www.trai.gov.in www. India-cellular.com
ISSN No. : 0974-0597
Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
An Emotional Intelligence of the Communicators for Enhancing Agricultural Productivity Kumud Singh1 , Shailendra Singh
2
Abstract:
Introduction:
Agriculture scientists and extension specialists have a great power over farmers as the farmers look forward to expert advice directly coming from professionally trained persons who are well versed with current happenings in the field. Experts are definitely sought after for their knowledge and are respected for their knowledge and intellectual superiority. But these experts are not merely information transmitters. They also have broader role to play as leaders. As leaders they are expected to motivate and inspire the most important stakeholder of agricultural enterprise the farmer. While describing what makes a successful leader in business settings, Goleman identified a bunch of competencies among the leaders grouped into five dimensions, namely, self awareness, self regulation, motivation, empathy and social skills taken together called emotional intelligence. In the present paper, we have emphasized that the competencies contained in emotional intelligence is relevant in the communication, persuasion, and influence process involved in agriculture settings also. Here the concept of emotional intelligence has been introduced and then an effort has been made to link with the communication, influence processes, and the production in agriculture. Also the guidelines for honing emotional intelligence competencies through self directed learning have been provided.
The agriculture scientists and extension professionals have a considerable power over the farmer community as a whole. Knowledge and expertise are crucial sources of power. In French and Raven's (1959) conceptualization of power bases, expert power is considered a superior power base because the power holders have personal control on the sources of power. Such power base lends credibility to what they say plus generates respect for power holders. People get persuaded if they believe that the communicator the source of message, is credible. Certainly, credibility of source is an important factor in communication effectiveness, but only credibility of message does not bring change. The whole communication influence internalization and change process is quite complex. Knowledge and expertise of scientists and extension professionals may provide only information and motivation and inspiration angles may be missing from the message. That is why it is suggested that scientists and extension professionals need to play the role of leaders who have honed their emotional intelligence. The paper makes straightforward argument that agriculture scientists and extension professionals need to possess, the emotional intelligence competencies grouped into five major components: self awareness, self regulation, motivation, empathy and social skills. The emotionally intelligent scientists and extension professionals will be able to persuade better and will serve as change catalysts, by motivating and inspiring the most important stakeholder of the agriculture enterprise- the farmer.
Keywords: Emotional Intelligence, Communication, Motivation and Influence Process
The following issues have been dealt with here:
1. An Extension Centre of ND University of Agriculture and Technology, Kumarganj, Faizabad E-mail:
[email protected] 2. Indian Institute of Management Prabandh Nagar, Off Sitapur Road Lucknow -226013 (U.P.) E-mail:
[email protected]
—
Communication Process: Importance of credibility of the source
—
What is Emotional Intelligence?
—
What is the role of emotional intelligence in communication process?
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What is contribution of emotional intelligence in motivating and influencing others?
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Can emotionally intelligent leaders/motivators influence performance of followers?
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How can the scientists and extension professionals develop their emotional intelligence?
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An Emotional Intelligence of the Communicators for Enhancing Agricultural Productivity —Kumud Singh1 , Shailendra Singh2
The Communication Process : The Importance of Credibility of the Source: Credibility of the source plays a very important role in making the communication effective. Agricultural scientists and extension professionals are considered persons of high credibility because of their educational qualification and knowledge of the subject. Studies suggest that the general population views academicians and extension professionals as independent persons with the quest of knowledge and facilitators of agriculture enterprise. Therefore, these scientists and extensional professional do not have any personal motivation to influence the farmers in one way or the other. According to Covello(1992) credibility and confidence of communicators are influenced by four factors: ·
Perception of empathy and caring. This would seem to be the most significant factor. The principle is : Try to understand first before being understood. Does the communicator give the impression that he/she is interested in the welfare of the farmer? Does he/she spend enough time to listen to his/her audience? More often
·
·
·
than not, the public makes up its mind about this factor from the initial contact. Once the public has formed an impression, the same will be difficult to change. The perception of competence and expertise: Perceptions are formed by what the communicators have accomplished in the past, including their training, experience, knowledge and verbal skills. The perception of honesty and openness: This perception is influenced by actions, words and body language. A Communicator who is unable to see into the eyes of the others, or uses physical barriers is perceived to be lacking in openness. The perception that the communicator is dedicated to the cause: This perception is formed on the basis of the communicator's hard work and diligence to achieve goals connected with adoption and innovation in agriculture enterprise. The audience normally forms this impression based on various verbal and non-verbal cues: Is the communicator available outside of office hours? Does the communicator remain present for the entire public meeting? Does the communicator listen to the audience point of view?
Figure 1. Major Contributing Factors in a Communicators' Credibility Empathy and Caring
Competence and Expertise
Credibility of Communicator
Honesty and Openness
It may be clear from the above discussion that communicator's credibility is a complex issue and is affected by a host of factors. The factors listed by Covello are only illustrative and not exhaustive. It is also clear that the credibility is not only knowledge or competence based, it has affective or motivational components too. In order to incorporate comprehensive view of motivational /affective components, it is suggested to include emotional intelligence of communicators in model of communication effectiveness. What is Emotional Intelligence (EI)? a) One does not get an idea as to what is EI. Emotional intelligence is considered to be more important in determining leadership success than IQ. Leadership research suggests that in order to be successful, leaders need basic intelligence (IQ) and job knowledge. It is stressed by Goleman the author of the famous book Emotional Intelligence (EI), that IQ and technical skills may provide threshold level capability. They may help people to get the
Dedicated to the Cause
first job, but are not sufficient to make one a leader. It is the possession of a bunch of competencies grouped into five categories, namely, self awareness, self regulation, motivation, empathy and social skills which facilitate one to emerge as a leader. More than 90 percent of the difference on effectiveness between the star performers, especially in senior positions, and averages ones, was attributable to EI. EI is positively related with job performance at all level, but it becomes crucial when the job requires social interactions and persuasion. The five components of EI are briefly described as under: — Self- awareness. Demonstrated by self confidence, realistic self assessment, and self deprecating sense of humour. — Self regulation. Demonstrated by trustworthiness and integrity, tolerance of ambiguity, impulse control, and openness to change. — Motivation. Demonstrated by strong drive to achieve,
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
optimism, and high organizational commitment. — Empathy. Demonstrated by, sensitivity to others' needs, expertise in building and retaining talents, cross cultural sensitivity, service to clients and customers. — Social skills. Demonstrated by ability to lead change efforts, persuasiveness, conflict management skills and ability to build and lead teams. These competencies have been found to help leaders succeed in business settings; they are relevant wherever the social influence processes, including communication and persuasion, are involved. In the agricultural extension work it is communication and persuasion through out. It is therefore advocated that agricultural scientists and extension professionals need to possess EI competencies for succeeding in their endeavour to positively impact agricultural enterprise of farmers through leading, motivating, involving, persuading catalyzing change and development process. The Role of Emotional Intelligence in the Communication Process: Communication means transference and understanding of meaning. It involves the transmission of ideas by the sender and reception and understanding by the others. Communication will be considered effective if the same has created the desired impact, i.e., understood by the receiver exactly in the same way, as was intended by the sender. EI of the communicator plays an important role in making communication effective. EI has a component called empathy. Empathy means putting oneself in receiver's shoes. By implication the scientists and extension professionals will need to put themselves in their clients' (farmers') shoes and develop sensitivity towards their clients' needs, aspirations, attitudes, emotions and perceptions and also need to develop the habit of listening. Once the communicators develop such sensitivity, they will use the most appropriate channel and most appropriate message. Empathy also guides the communicators to tailor the message to suit the exact need of the audience. The communicators have the responsibility to deliver the message in most simple and most straight forward manner. The language used for encoding the message should be the language of the recipients. Communicators should also speak to the recipients to seek feedback as to whether the message received by them has been correctly understood. In case the message has not been interpreted in the intended manner, communicators have the responsibility to reframe the message and to ensure its correct understanding, even if this requires the use of multiple channels, i.e, handbills and face to-face communication. Essentially, EI helps communicators to share perspective with clients and makes them more sensitive towards the needs and perceptions of the clients. Thus the messages used are appropriately framed and delivered in the right manner through appropriate channels.
63
EI in Motivating and Influencing the Others: EI consists of five dimensions: self awareness, self regulation, motivation, empathy and social skills. The first three dimensions are considered intrapersonal dimensions, meaning that people look inwards to hone in these competencies. Empathy and social skills are interpersonal dimensions, meaning that people interact with others to exercise and hone in competencies in these two areas. Motivating and influencing others are integral part of EI dimensions called social skills. In the conceptualization of EI, Goleman has renamed social skills as relationship management. Within this component the subsumed dimensions are: inspiration, influence, developing others , change catalyst, conflict management, and team work and collaboration. In fact, relationship management/ social skill competencies are essentially leadership competencies of motivating and influencing others. People with high EI have been able to sell more insurance, have been able to motivate the sale force better. High EI leaders are able to communicate shared vision and mission for high performance. There has not been much empirical work in extension area, but when findings obtained in business and educational settings are generalized in extension setting, then it is predicted that high EI communicators will be able to motivate, inspire, persuade and catalyze change process in the field of agriculture more frequently as compared to low EI communicators. Can Emotionally Intelligent Leaders/Motivators Influence Performance of the Followers? This question can more simply be stated can leaders influence the performance of followers? Leadership research has indicated that leadership styles and behaviour influence both motivation, morale and performance of followers. Research on EI leadership (Goleman, 2000; Goleman, Boyatzis, & Mckee, 2002; Singh, 2003) also suggests that emotionally intelligent leaders affect their subordinates and organizations positively. But how does it happen? The evidence suggests that leaders, through their emotionally intelligent behavior, help create a work climate that encourages people to give their best. The enthusiasm generated through encouraging work climate positively impacts business performance. McClelland (1998) reported a study on a global food beverage company where EI of leaders had a significant positive relationship with performance. The division leaders with high EI had 15 to 20 percent higher revenue than the divisional leaders with weaker EI. Another study again suggested that EI leaders influence performance of followers and organization through building supportive and congenial climate. A study of 42 school heads and academic performance suggested that heads' leadership styles reflected many EI competencies which positively influenced organizational climate, which, inturn, affected teachers' morale and students' academic achievement. When heads demonstrated fewer EI competencies, teachers tended to low morale and students displayed lower academic achievement
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An Emotional Intelligence of the Communicators for Enhancing Agricultural Productivity —Kumud Singh1 , Shailendra Singh2
(Hay/McBer, 2000). Goleman(2000) reinterpreting Hay/Mcber's data on 3781 executives identified six leadership styles : authoritative, the affiliative, the democratic, the coaching, the coercive and pace setting. The first four styles : authoritative, the affiliative, the democratic, and the coaching tend to affect climate in a positive direction. The other two styles-the coercive and the pacesetting-tend to drive climate downward, particularly when leaders overuse them. However, even these styles have an impact if applied in appropriate situations. Singh(2003) has also reported that EI competencies of leaders affect organizational climate which in turn influence the followers' and organizational performance. The evidence gathered here is persuasive enough to suggest that EI can affect group of clients, farmers through, inspiration, encouragement to adopt innovations and change in their enterprises. How can the Agricultural Scientists and Extension Professionals Develop Their EI? Learning is a continuous process. Learning can be self initiated or it may be initiated by an organization. In both situations the onus of learning is on the learner. The seat of EI is limbic system a part of lower brain which learns more by practice and feedback. The leaders-the scientists and extension professionals need to familiarize themselves with the concept of EI. They then need to check whether they are ready to learn EI competencies. Some amount of discomfort with the status quo and eagerness to acquire new competencies is a necessary condition for learning. Throndike's theory of learning provides guidelines for self directed learning to develop EI. Throndike proposed three laws of learning: Law of readiness, Law of practice and Law of effect. Law of readiness suggests that a person should experience the need to acquire new competencies. Horse is brought to water. But horse will drink only when it is thirsty. Similarly, the scientists and extension professionals should feel the need for acquiring new competencies. If the stage of readiness has been attained, people need to observe behaviour of a high EI individual. Learners need to try to practice the behaviour that they want to acquire privately. Once reasonable confidence is built, they can experiment with that behaviour in the group. They need not feel disheartened if they commit mistakes or are not able to display mastery level performance at the first go. Mistakes provide lessons and feedback on performance. They need to revise their behaviour by removing awkward parts and experiment with revised behaviour. Initial failures should not dishearten learners. Learning happens through trial and error. Indulge in practice again and again. Practice makes a man perfect. This is the law of practice. The behaviours that are considered successful, should be repeated many more times. Reward yourself on even small improvements in desired directions. Rewarding progress will help you move towards acquiring many new behaviours. Behaviours that are successful are repeated and behaviours that are not successful are avoided. This happens because learners know the result/impact of their performance
and make corrective action in subsequent behaviours. This is the law of effect. The three principles taken together provide a good framework for learning new competencies. These principles can be used by scientists and extension professionals for developing their EI. Conclusion: The argument has been forwarded in the paper that agricultural scientists and extension professionals enjoy considerable power over farmers. The source of their power hinges on their expertise. While communicating about the recent advances in their field they try to influence the farmers. Effectiveness of their communication depends on their credibility which partly depends on knowledge and information and partly on their ability to motivate and inspire the farmers. While inspiring and motivating farmers they start playing the role of leaders. The Leaders with high EI are considered to be successful in business settings. It is therefore recommended that agriculture scientists and extensional professionals should also develop their EI in order to be successful. Some tips to develop EI have also been provided. References: Covello, V.T. (1992). Trust and credibility in risk communication. Health and Environment Digest, 6(1), 47. French,Jr., J.R.P., & Raven, B. (1959). The bases of social power. In D. Cartwright(Ed.) Studies in social power (pp.150-67). Ann Arbor: University of Michigan, Institute of Social Research . Goleman, D. (2000). Leadership that gets results. Harvard Business Review, March-April, 78-90. Goleman, D., Boyatzis, R. Mckee, A. (2002).The new leaders. London: Little Brown. Hay/McBer(2000). Research into teacher effectiveness: A model of teacher effectiveness. A report prepared by Hay/McBar for the Government of United Kingdom. Available at http://www.dfee.gov.uk/teachingreforms/mcber/. McClleland, D.C.(1998). Identifying competencies with behavioral event interviews. Psychological Sciences, 9(5), 331-340. Singh, S. (2003). Leadership in high performance organizations. In S. Bhargava(Ed.). Transformational leadership. New Delhi: Response. Thorndike, E.L.( 1928). Human learning. Macmillan.
New York:
ISSN No. : 0974-0597
Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
Customer Relationship Marketing in Indian Cement Industry Tiwari Ashok Kumar1, Renavikar Ashwini2
Abstract:
Introduction:
“The purpose of a business is to create and keep a customer.” This is easy to say but not so easy to execute. The challenge of driving and maintaining the relationships with the customers is served with customer relationship management. CRM is important because of the changes occurring in the competitive environment. The relations that are maintained are a kind of trust that the institutions provide to its customers and fulfill them. This study is directed towards analyzing the CRM Effectiveness of the Major grey cement manufacturing companies in Pune region and the customer loyalty exhibited by the customers of these companies. The analysis of the study has pointed out to the fact that a lot of efforts need to be put in order to systematize CRM in cement industry. It was seen that the companies which had effective CRM strategies, were able to retain their customers for a longer period of time as compared to the companies which did not have effective CRM processes. To increase the CRM effectiveness of the companies, a lot of awareness needs to be created among the people working at all levels of a company so that the customers are served better and also it leads to the profitability of the company.
Customer Relationship Management focuses on individual or one-to-one relationship with customers that integrate database knowledge with long-term customer retention and growth strategy. It is an integrated effort to identify, maintain, and built up a network with individual customers and to continuously strengthen the network for the benefit of both sides, through interactive, individualized value-added contacts over a long period of time. In the new age, marketing has aimed at winning customer forever, where companies greet the customers , create products to suit their needs, work hard to develop life-time customer approval, customer enthusiasm, etc.
Keywords: Relationship Marketing, Trust, Effectiveness, Retention, Loyalty.
1. Professor Sinhgad Institute of Management, S.No. 44/1, Vadgaon Bk, Off Sinhgad Road, Pune-41 Email:
[email protected] 2. Asst. Professor, Sinhgad Institute of Management S.No. 44/1, Vadgaon Bk, Off Sinhgad Road, Pune-41 Email :
[email protected]
In recent years, several factors have contributed to the rapid development and evolution of CRM. These include the deintermediation process in many industries due to the advent of computer and telecommunication technologies that allow producers to directly interact with end customers. In many industries such as airlines, banks, insurance computer program software, or household appliances and even consumable, the de-intermediation process is fast changing the nature of marketing and consequently making relationship marketing more popular. Databases and direct marketing tools give them the means to individualize their marketing efforts. As a result, producers do not need those functions formerly performed by the middlemen. Even consumers are willing to undertake some of the responsibilities of direct ordering, personal merchandising and product use-related services with little help from the producers. Thus relationship marketing is aimed to create strong, long lasting, fruitful relationships by developing long-term bonds through its various instruments of personal connections , as a result customer starts identifying, associating themselves with the product, prefer and accept company's product and service over competitors offerings, buys again, and recommend others to buy. CRM strategies in cement companies constitutes all the efforts initiated by the company to take care of three important set of customers (influencer, buyer and end user), attempting to build long term productive relationship in distinct ways and to manage them to its optimum advantage. Objectives of the Study: This study is focused on understanding the relationship
66
Customer Relationship Marketing in Indian Cement Industry —Ashok Kumar Tiwari1, Ashwini Renavikar2
between effectiveness of CRM strategies and customer loyalty in cement industry of Pune region. The study also covers the customers opinions regarding the strategies adopted by the major players as compared to the small players in the market. The main objectives of the study are as follows:· To find out the effectiveness of CRM strategies adopted by cement marketers in Pune region. · To study and compare the customer's satisfaction level of cement marketers. · To study the customer loyalty patterns among the customers of grey cement. Hypotheses of the study: The following hypotheses were formulated and tested to reach to the conclusion of this study. · Higher the knowledge of business education of marketing staff, greater will be the emphasis on customer relationships. · More focused are the marketing staff on customer service, higher will be the customer retention. · Higher the comfort level of marketing staff with the technology, the more are the chances to use relationship marketing. · The more effective the CRM strategies of a company, the more is the customer- loyalty. Review of Literature: Customer Relationship Management (CRM) has become one of the most dynamic technology topics of the millennium. According to Chen and Popovich (2003), CRM is not a concept that is really new but rather due to current development and advances in information and enterprise software technology, it has assumed practical importance. The root of CRM is relationship marketing, which has the objective of improving the long-term profitability of customers by moving away from product-centric marketing. Bose (2002) noted that CRM was invented because the customers differ in their preferences and purchasing habits. If all customers were alike, there will be little need for CRM. As a result, understanding customer drivers and customer profitability, firms can better tailor their offerings to maximize the overall value of their customer portfolio (Chen and Popovich) . The attention CRM is currently receiving across businesses is due to the fact that the marketing environment of today is highly saturated and more competitive (Chou et al, 2002) . According to Greenberg (2004), CRM generally is an enterprise-focused endeavor encompassing all departments
in a business . He further explains that, in addition to customer service, CRM would also include, manufacturing, product testing, assembling as well as purchasing, and billing, and human resource, marketing, sales and engineering. Chen and Popovich (2003) argued that CRM is a complicated application which mines customer data, which has been retrieved from all the touch points of the customer, which then creates and enable the organization to have complete view of the customers . The result is that firms are able to uncover and determine the right type of customers and predicting trend of their future purchases. CRM is also defined as an allembracing approach that seamlessly integrates sales, customer service, marketing, field support and other functions that touch customers (Chou et al, 2002) . They further stated that CRM is a notion regarding how an organization can keep their most profitable customers and at the same time reduce cost, increase in values of interaction which then leads to high profits. The modern customer relationship management concept was shaped and influenced by the theories of total quality management (Gummesson) and by new technological paradigms (Zineldin, 2000). There is however, a perceived lack of clarity in the definition of customer relationship management, although all accepted definitions are sharing approximately the same basic concepts: customer relationships, customer management, marketing strategy, customer retention, personalization (Zineldin 2000) .vHowever, while academics debate the subtitles of various definitions, the practitioners have developed a wealth of applicative papers analyzing the concrete challenges and opportunities of implementing the systems (Bacuvier et al. 2001) . CRM in some firms is considered as a technology solution, considering of individual databases and sales force automation tools and sales and marketing functions so as to improve targeting effort. Peppers and Rogers (1999) argued that other organizations view CRM as a tool, which has been particularly designed for one-to-one customer communications, which is the function of sales, call centres or the marketing departments. Accordingly Frow and Payne (2004) added that CRM stresses two-way communication from the customer to the supplier to build the customer over time. The two-way communication has been enhanced greatly by advances in technology particularly the Internet. In term of information technology (IT), CRM means an enterprise wide integration of technologies working together such as data warehouse, web site, and intranet/extranet, phone support system, accounting, sales, marketing and production. Kotler (2000) assured that CRM uses IT to gather data, which can then be used to develop information acquired to create a more personal interaction with the customer. In the long-term, it produces a method of continuous analysis and reinforcement in order to enhance customer's lifetime value with firms. Goldenberg (2000) believes that CRM is not merely technology applications for marketing, sales and services but
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
rather when it is successfully implemented ; it enables firms to have cross-functional , customer-driven, technologyintegrated business process management strategy that maximses relationships . Chin et al (2003) stated that that due to many technological solutions available for CRM automation, it is often misconstrued as a piece of technology. But they maintained that in recent times many companies have realized the strategic importance of CRM, and as a result, it is becoming a business value-effort rather than technology- centric effort. Using information technology as an enabler, CRM strategy leverages key functional areas to maximize profitability of customer interactions (Chen and Popovich, 2003) . It has been recognized that technological advancements and innovations , keen competitive marketing environment , coupled with the internet are main drivers of present and future customer profitability which makes it possible to appropriately and proportionately allocate firm's resources to all functional areas that affect customer relationship ( Chou et al , 2003) . For customers, CRM offers customization, simplicity and convenience for completing transactions irrespective of the kind of channel of interaction used (Gulati and Garino, 2000). Many businesses today realize the importance of CRM and its potential to help them achieve and sustain a competitive edge (Peppard, 2000). This view was further boosted by Bose (2002) that as a result of changing nature of the global environment and competition, firms cannot compete favorably with minor advantages and tricks that can easily be copied by competing firms .The implementation of CRM is an enabled opportunity to rise above minor advantages with real focus on developing actual relationships with customers. Firms that are most successful at delivering what each customer want are the most likely to be leaders of the future. According to Chen and Popovich (2003), CRM applications have the ability to deliver repositories of customer data at a much smaller cost than old network technologies. Throughout an organization, CRM systems can accumulate, store, maintain, and distribute customer knowledge. Peppard (2000) noted that effective management of information has a very important role to play in CRM because it can be used to for product tailoring, service innovation; consolidate views of customers, and for calculating customer lifetime value . CRM systems assists companies evaluate customer loyalty and profitability based on repeat purchases, the amount spent, and longevity. Bull (2003) added CRM makes it practicable for companies to find unprofitable customers that other companies have abandoned. This position is supported by Galbreth and Rogers (1999) that CRM helps a business organization to fully understand which customers are worthwhile to acquire , which to keep, which have untapped potential, which are strategic, which are important , profitable and which should be abandoned . Greenberg emphasized that CRM can increase the true
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economic worth of business by improving the total lifetime value of the customer , adding that successful CRM strategies encourage customers to buy more products, stay loyal for longer periods and communicate effectively with a company . CRM can also ensure customer satisfaction through allocation, scheduling and dispatching the right people, with the right parts, at the right time (Chou et al., 2002). According to Swift (2001), companies can gain many benefits from CRM implementation. He states that the benefits are commonly found in one of these areas: i) Lower cost of recruiting Customers: The cost of recruiting or obtaining customers will decrease since there savings to be made on marketing, mailing, contact, follow-up, fulfillment services and so on. ii) No need to acquire so many customers to preserve a steady volume of business: The number of long-term customers will increase and consequently the need for recruiting many new customers will decrease. iii) Reduced cost of sales: The costs regarding selling are reduced owing to existing customers are usually more responsive. In addition, with better knowledge of channels and distributions the relationship become more effective, as well as that cost for marketing campaign is reduced. iv) Higher Customer Profitability: The Customer profitability will get higher since the customer wallet share increases, there are increases in up - selling, cross selling and followup sales, and more referrals come with higher customer satisfaction among existing customers. v) Increased Customer retention & Loyalty: The customer retention increases since customers stay longer, buy more and buy more frequently. The customer does also take initiatives which increase the bounding relationship, and as a result the customer loyalty increases very well. vi) Evaluation of customers Profitability: A firm will get to know which customers are profitable, the one who never might become profitable, and which ones that might be profitable in future. This is very important since the key to success in any business is to focus on acquiring customers who generate profit and once a firm has found them, never let them go. Curry and Kkolou (2004) refer to the major benefits and reasons for adoption of CRM which include: customers from the competition will come prefer the organization; a simplified, customer focused internal organization will simplify the infrastructure, shrinking the work flow and eliminating non-productive information flow; and profits will increase from satisfied customers which will lead to more compact & focused company . There are some companies that adopt CRM systems just because it is the most advanced technology and they think they
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Customer Relationship Marketing in Indian Cement Industry —Ashok Kumar Tiwari1, Ashwini Renavikar2
should have it since their competitors have it (Chou et al, 2002), Some statistics that motivate this behavior are resumed as follows : a) By Pareto's principle, it is assumed that 20% of a company's customers generate 80% of its profits. b) In industrial sales , it takes an average of 8 to 10 physical calls in person to sell to a new customer , 2 to 3 calls to an existing customer. c) It is 5 to 10 times more expensive to acquire a new customer than obtain repeat business from existing customer. d) A typical dissatisfied customer tells 8 to 10 people about his or her experience source. Getting to “know” each customer through data mining techniques and a customer-centric business strategy helps the organization to proactively and consistently offer and sell more products and services for improved customer retention and loyalty over long periods of time. Peppers and Rogers (1999) refer to this as maximizing “lifetime customer share”, resulting in customer retention and customer Profitability . The initial days when everything went in the name of CRM, are over. The corporates will soon tighten their conceptualization of CRM, demand tangible financial and non-financial return on investment in CRM and, seek to have the output of the CRM audited and validated so that it befits the organization and fulfills the expectations of the customers. Like any other new function, CRM too has its own drawbacks and challenges. Any organization that seeks to implement CRM may focus on value creation and on a continuous stream of profits. They will give up their myopic fix that CRM is the fixed responsibility of marketing or IT department. The firms will realize that in order for CRM to contribute to corporate renaissance, the CRM responsibility must rise to the level of CEO. CRM will be more strategy driven, and thus be able to concentrate on what customer expects from relationships. The 'final take' for the CEOs will be that CRM is and can be a vehicle for cultural integration in the organization. In short, a true CRM encourages a relationship view of the world that goes beyond the customers, includes multi members and facilitates corporate renaissance. Customer Relationship Management is an information industry term for methodologies, software, and, usually, Internet capabilities that help an enterprise manage customer relationships in an organized way. For example, an enterprise might build a database about its customers that describes relationships in sufficient detail. Therefore, management, salespeople, people providing services, and perhaps the customers could directly access information, match customer needs with product plans and offerings, remind customers of service requirements, and know what other products a customer had purchased.
According to one industry view, CRM consists of: a) Helping an enterprise to enable its marketing departments to identify and target their best customers, manage marketing campaigns with clear goals and objectives, and generate quality leads for the sales team. b) Assisting the organization to improve telesales, account, and sales management by optimizing information shared by multiple employees, and streamlining existing processes (for example, taking orders using mobile devices). c) Allowing the formation of individualized relationships with customers, with the aim of improving customer satisfaction and maximizing profits; identifying the most profitable customers and providing them the highest level of service. d) Providing employees with the information and processes necessary to know their customers, understand their needs, and effectively build relationships between the company, its customer base, and distribution partners. Two trends have brought CRM to the forefront, explains Boston University professor Tom Davenport, who directs Andersen consulting's Institute for Strategic Change. First, as global competition has increased and products have become harder to differentiate, “companies have begun moving from a product-centric view of the world to a customer-centric one,” says Davenport. Second, technology has ripened to the point where it is possible to put customer information from all over the enterprise into a single system. “Until recently, we didn't have the ability to manage the complex information about customers, because information was stored in 20 different systems,” says Davenport. But as network and Internet technology has matured, CRM software has found its place in the world. Many companies are turning to customerrelationship management systems to better understand customer wants and needs. CRM applications, often used in combination with data warehousing, E-commerce applications, and call centers, allow companies to gather and access information about customers' buying histories, preferences, complaints, and other data so they can better anticipate what customers will want. The goal is to instill greater customer loyalty. Other benefits include: i)
Provide faster response to customer inquiries.
ii) Increasing efficiency through automation. iii) Having a deeper knowledge of customers. iv) Getting more marketing or cross-selling opportunities. v) Identifying the most profitable customers. vi) Receiving customer feedback that leads to new and
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improved products. vii) Doing more one-to-one marketing. Drawing on field interviews and a survey of senior executives, the results reveal that a superior CRM capability can create positional advantage and subsequent improved performance. Further, it is shown that to be most successful, CRM programs should focus on latent or articulated needs that underpin a proactive market orientation. Construction is an essential part of any country's infrastructure and industrial development. Construction industry, with its backward and forward linkages with various other industries like cement, steel, bricks etc. catalyses employment generation in the country. Construction is the second largest economic activity next to agriculture. Broadly construction can be classified into 3 segments - Infrastructure, Industrial and Real Estate. Infrastructure segments involve construction projects in different sectors like roads, rails, ports, irrigation, power etc. Industrial construction is contributed by expansion projects from various manufacturing sectors. Real estate construction can be subdivided into residential, commercial, malls/multiplexes etc. The construction activity involved in different segments differs from segment to segment. Construction of houses and roads involves about 75% and 60% of civil construction respectively. Building of airports and ports has construction activity in the range of 40-50%. For industrial projects, construction component ranges between 15-20%. Within a particular sector also construction component varies from project to project. Construction sector contributed about 8.5% to the country's GDP in FY 08. Over past few years, growth of the construction has followed the trend of economic growth rate of the country. Over past 3 years, construction as a percentage of GDP has increased from 8.0% in FY 06 to 8.5% in FY 08. Construction activity being labour intensive has generated employment for about 33 million people in the country. One of the basic issues in cement marketing is the limited scope of differentiation of the product often resulting in confused marketing. Therefore strategic marketing tools like CRM could be an “immediate” distinguishing factor to position the company /brand among the competition. This immediate factor can be further leveraged to enable the company to gain sustainable competitive advantage. Survey of Cement Industry Customers: The data was collected through a well structured questionnaire, which comprised various constructs such as Total knowledge, Top management support, CRM performance, Internalization, Relationship strength and Availability. The data was analyzed using SPSS software, to test various hypotheses of the study. For this T- test was used. Questionnaire Development: Development of the questionnaire took place in two stages:
I)
69
A review of the relevant marketing literature and of practitioner literature on CRM.
ii) A final pretest for measuring purification Given that a number of constructs in the study had some measurement history, instrument development began with the academic literature. The research questionnaire was designed with the research objectives in mind. Based on the information needs, two different questionnaires were designed to obtain information from each class of respondents i.e., Customers & Company executives. Questionnaire 1 for Company executives and Questionnaire 2 for Customers. Questionnaire 1 had three sections. Section A contained 30 questions which are related to Total knowledge. Section B contained 18 questions which are related to finding out Top Management support. Section C contained 12 questions which are related to finding out CRM performance (CRM Effectiveness). Questionnaire 2 had a total of 39 questions for measuring customer loyalty. The various constructs used for measuring customer loyalty were identified as Internalization, Relationship strength, Stakes, Analogy, Approbation & Availability. Sample Profile: Non Probability sampling: The target population for the study to find out CRM Effectiveness was selected on the basis of judgment sampling, as only those grey cement manufacturing companies were considered for the study, who supplied grey cement in Pune region on a regular basis. After identifying the five major grey cement manufacturing companies, three executives from each company were contacted ( A total of fifteen company executives ) find out the various CRM strategies implemented by them in the market and the effectiveness of these CRM strategies in terms of Customer acquisition , Customer retention, Customer satisfaction, Profitability and customer service. Purposive Sampling-The target population of the study to find out customer loyalty was selected on the basis of purposive sampling method, whereby only those set of customers were considered, who mattered most to the company in terms of purchase quantity of grey cement. The identified sets of customers selected for this study are Architects, Builders, Engineers, Dealers, and Masons. Convenience sampling- Out of the identified set of customers for this study a total sample of 200 customers was selected. The customers were interviewed to find out various parameters of customer loyalty such as Internalization, Relationship strength, stakes, Analogy, Approbation and Availability. Data was collected from 200 respondents. As the unit of analysis of this study was customer manufacturer relationship, the questionnaire includes questions related to Customer manufacturer relationships.
Customer Relationship Marketing in Indian Cement Industry —Ashok Kumar Tiwari1, Ashwini Renavikar2
70
Primary Data: Marketing managers, CRM Managers, Company Employees, Architects, Builders, Contractors, Dealers, Masons. Sample Selection Method: Non-probability (Purposive Sampling, Convenience Sampling) Instruments used for Data collection: Interview method & Questionnaires Sample size: Five grey cement manufacturing companies from Pune region. Fifteen company executives (Three employees from each company were covered to find the effectiveness of CRM strategies. 200 customers belonging to different categories of Builders, Architects, Contractors, Dealers & Masons were covered from Pune region to assess customer loyalty.
Sampling followed these steps. I) Restricting geographical area to Pune region. ii) Selecting five companies to be studied and contacting fifteen company executives for finding out the CRM strategies and ascertaining the effectiveness of customer relationship management strategies iii) Dividing the customers into categories, such as Architects, Builders, Engineers, and Dealers & Masons. iv) Randomly intercepting samples. The unit of relationship is Customer Manufacturer relationships, related in an exchange relationship. The data collected through the survey included 200 responses from customers and fifteen responses from company executives which were used for the analysis. Grey cement manufacturing companies: ACC, Ambuja, Indo Rama, Ultratech, Vasavdatta.
Data Analysis: Total Knowledge of Company executives ( Mean Values) Company
R_I knowledge (relational identification)
interactional knowledge
functional knowledge
environment knowledge
process formalization
Company 1
23.67
25
22.67
21.33
22.33
Company 2
20
16
17
18
20
Company 3
15
15
17
13
18
Company 4
24
22
22.67
24.67
22.33
Company 5
26.33
25.67
24.67
25
26.33
Total
21.8
20.73
20.8
20.4
21.79
Total Management Support Company
belief practice components components
Data Analysis & Results: relational orientation
Company 1
23
21
20.67
Company 2
18
15
20
Company 3
14
14
16
Company 4
22.33
23.33
22
Company 5
26.67
25.67
26.33
After analyzing the data provided by the various customers of cement industry and marketing staff of the cement companies, it was observed that all the three hypotheses were accepted after making use of statistical methods to test the hypothesis. Following is the summary of the Data Analysis and Hypothesis testing results from survey of cement customers. Hypotheses Testing: Hypothesis No.1:
Total
20.8
19.8
21
Higher the knowledge of business education of marketing staff, greater will be the emphasis on customer relationships. H01 : No statistically significant difference exists between the knowledge of business education of the marketing staff and
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71
General Performance of cement companies (Numbers indicate mean values) Company
Eff_ marketing strategies
customer acquisition
customer retention
customer satisfaction
profitability
customer service
Total (General Performance)
Company 1
4
3
4
3.67
3.33
3
21
Company 2
2
1
3
2
3
2
13
Company 3
3
2
2
1
2
3
13
Company 4
4.33
4
4
3.33
4.33
3.33
23.32
Company 5
4
5
4
4.33
4.67
4.33
26.33
Analysis of Customer loyalty Company
Internalisation Rel_ strength
Total
Stakes
Analogy
Approbation
Availability
27.61
21.06
27.79
22.82
3
138.97
( Loyalty)
Company 1
14.73
Company 2
10
19
13.19
19.81
15.81
2
91.44
Company 3
10
19
13.22
19.88
15.71
3
91.39
Company 4
15.24
27.78
21.15
28.63
22.63
3.33
140.56
Company 5
16.53
29.56
22.96
30.72
22.64
4.33
149.04
Total
13.64
25.05
18.75
25.93
20.08
Relation between CRM Effectiveness & Customer Loyalty ( Mean values ) Company
CRM Effectiveness
Customer Loyalty
Company 1
25
138.97
124.75
emphasis on customer relationships. To test the Null hypothesis Pearson correlation coefficient was used to calculate the correlation between knowledge and customer relationships. After using the statistical tests, it was found that the Null hypothesis was rejected and hence, it can be inferred that higher the knowledge of business education of marketing staff, greater will be the emphasis on customer relationships. Hypothesis No.2:
Company 2
18.67
91.44
More focused are the marketing staff on customer service, higher will be the customer retention.
Company 3
18
91.39
Company 4
25.67
140.56
Company 5
28.67
149.04
H02 : No statistically difference exists between customer service and customer retention. To test the Null hypothesis Pearson correlation coefficient was used to calculate the correlation between customer service and customer retention. After using the statistical tests, it was found that the Null hypothesis was rejected and hence, it can be inferred that more focused are the marketing staff on customer service, higher will be the customer retention.
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Customer Relationship Marketing in Indian Cement Industry —Ashok Kumar Tiwari1, Ashwini Renavikar2
Hypothesis No.3: Higher the comfort level of marketing staff with the technology, the more are the chances to use relationship marketing. H03 : No statistically difference exists between how knowledgeable the marketing staff with the technology and the use of relationship are marketing approach. To test the Null hypothesis Pearson correlation coefficient was used to calculate the correlation between marketing staff's knowledge of technology and the use of relationship marketing approach. After using the statistical tests, it was found that the Null hypothesis was rejected and hence, it can be inferred that higher the comfort level of marketing staff with the technology, the more are the chances to use relationship marketing. Hypothesis No.4: The more effective the CRM strategies of a company, the more is the customer- loyalty. H04 : No statistically difference exists between CRM Effectiveness and Customer Loyalty. To test the Null hypothesis Pearson correlation coefficient was used to calculate the correlation between CRM Effectiveness and Customer Loyalty. After using the statistical tests, it was found that the Null hypothesis was rejected and hence, it can be inferred that more effective the CRM strategies of a company, the more is the customer- loyalty. The research shows that the most significant strategy when trying to maintain customer loyalty is the creation and maintenance of relationships between companies and their customer. It is found that a close and personal relationship with the customers generates in a number of benefits such as customer acquisition, customer retention, customer satisfaction and customer loyalty. To be able to maintain the relationships, trust between companies and their customers are of great importance. The companies have to trust their customers before their customers trust them. These close relationships can also create customer satisfaction, which according to the study is another significant strategy when trying to retain customers. It was further found that the creation of customer satisfaction is a way for companies to prevent their competitors to steal their customers, which also means preventing customers from switching brands. It also has been found that there are several different ways to create customer satisfaction such as meeting needs and desires of the customers, treating the customers with respect and receiving them well. The most important factor found was concerning the creation of customers satisfaction is the companies' personal service towards the customers. It was further found in the study that one of the most used strategies today dealing with keeping customers loyal is the customer loyalty program. These programs are introduced to build customer loyalty by rewarding the
customers. According to the finding of the study these programs work towards building relationships that generates benefits for both the companies and the customers. It is observed that it is less costly for companies to work towards keeping customers loyal than to attract new customer. This does not mean that companies can put all their efforts toward their loyal customers, the companies have to work towards a combination of both attracting new customers and keeping existing customers. It is important for companies not to forget to attract new customers even though it is more expensive than to keep focus on keeping existing ones. Implications: The most important task for managers to take in consideration when dealing with customer loyalty is to build and maintain relationships with the customers. Building good and close relationships with the customers is difficult but maintaining that relationship is even more difficult. Customer loyalty is of great value for the companies therefore the companies have to nurture their relationships with the customers. Therefore it is important for managers to always work towards improving their relationship with their customers and also to involve the whole personnel in this process. Since it is profitable to work towards keeping loyal customers rather than attracting new ones, companies today have to take care of their loyal customers and put lot of efforts into satisfying their existing customers in order to make them loyal. Managers have to realize that satisfied customers are those customers most likely to become loyal and therefore it is important to focus on satisfying their customers. The benefits generated from loyal customers should work as an incentive for managers to strive for creating highly loyal customers. In order to achieve this retention of customer, managers have to constantly develop their activities and create new and valuable benefits for their customers. Many of the theories suggest that satisfied customers often generate in brand loyalty but managers have to be aware of the concept of false loyalty. The false loyalty occurs when the customers are given a limited selection of products; the customers will then appear loyal and continue buying from one specific company. This appearance is due to lack of products substitutes and if other brands were available the customer would like to change brands. Although it might be difficult, managers have to try to recognize and differentiate between these types of loyalties. Conclusion: This research has found Customer acquisition, Customer retention & Customer satisfaction, as the factors which have influence on customer loyalty. This research has been done to find the customer loyalty factors and their relations with Customer relationship management strategies. It has been done in Pune region's environment. This research tries to present factors which influence the environment of cement industry. It is noticed that, loyal customers have different
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benefits for the industries. Having more profit is the simplest one to mention. Cement industry is not excluded, so managers can consider these findings in the strategies which are applicable to cement trade. Also the managers can focus on some factors only. According to the main strategies of the cement manufacturing companies, they can choose some other factors by considering the relations between them they can make their sub-strategies. Also it might differ from one cement company to another company and it could be because of each company's goal. Finally certain specific conclusions have been drawn that the study found is strategies for keeping customers loyal. i) The most significant strategy to maintain customer loyalty is the creation and maintenance of relationships between the companies and their customers. ii) The most important factor concerning the creation of customer satisfaction is the companies' personal service towards the customers. iii) Companies have to achieve customer satisfaction in order to prevent the customers from switching brands . References: Berry, L. (1995). Relationship marketing of services-growing interest, emerging perspectives. Journal of the Academy of Marketing Science, 23(4), 236-245. Brock, S. J. & Barclay, D. W. (1997). The effects of organizational differences and trust on the effectiveness of selling partner relationships. Journal of Marketing, 61(1), 3-21. Crosby, L. A., Evans, K. R. & Cowles, D. (1990). Relationship quality in services marketing: An interpersonal influence perspective. Journal of Marketing, 54 (July), 68-81. Crosby, L., & Johnson, S. (2001). Technology: Friend or foe to customer relationships? Marketing Management, 10(4), 10-11. Desai, C., Fletcher, K., & Wright, G. (2001). Drivers in the adoption and sophistication of database marketing in the services sector. The Service Industries Journal, 21(4), 1732. Ganesh, J., Arnold, M., & Reynolds, K. (2000). Understanding the customer base of service providers: An examination of the differences between switchers and stayers. Journal of Marketing, 64(3), 65-87. Garbarino, E., & Johnson, M. (1999). The different roles of satisfaction, trust, and commitment in customer relationships. Journal of Marketing, 63(2), 70-87. Gronroos, C. (1995). Relationship marketing: The strategy
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continuum. Journal of the Academy of Marketing Science, 23(4), 252-255. Gummesson, E. (1998). Implementation requires a relationship marketing paradigm. Academy of Marketing Science Journal, 26(3), 242-249. Kandampully, J., & Duddy, R. (1999). Relationship marketing: a concept beyond the primary relationship. Marketing Intelligence & Planning, 17(7), 315-323. Naidu, G. M., Parvatiyar, A., Sheth, J. N. & Westgate, L. (1999). Does relationship marketing pay? An empirical investigation of relationship marketing practices in hospitals. Journal of Business Research, 46(3) 207-218. Peterson, R. A. (1995). Relationship marketing and the consumer. Journal of the Academy of Marketing Science, 23(4), 278-281. Sheth, J. & Parvativar, A. (1995). Relationship in consumer markets: Antecedents and consequences. Journal of the Academy of Marketing Science, 23(4) 255-271.
ISSN No. : 0974-0597
Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
A Study of the Impact of Technical Education in Empowering Indian Women 1
Ghewari Asita A. , Pawar Satish N.
2
Abstract:
I ntroduction
India, like other countries, faces a growing problem of the "educated unemployed". There are male and female youths in India who have completed ten or more years of education but are unable to secure employment. The research to-date has concentrated on the relationship between general education and employment with little attention paid to the relationship between women's technical education, and the employment and consequently, empowerment.
Technical Education:
The impact of science and technology on society has not been uniformly beneficial. Not all members of society have shared in the benefits; especially women in India. This research project addresses this particular gap. In particular, it will concentrate on the role of technical education in empowering Indian women in all respect (socially, economically, etc.) and seek to determine the utility of technical education. In today's situation of gender equality, when central and state government are trying their best to achieve women's welfare through education, this research will help throw light on whether technical education really empowers women to survive in this era of competition or it is just an illusion. If it is so, the research can explain how women are economically and socially independent today. Methodology - An Explorative and descriptive survey was done with the help of well structured questionnaire in Pune District. Women with technical degrees and prior to that, had acquired any graduate or post graduate degrees were selected by snow ball sampling methods and they were administered a well structured questionnaire. An analysis was done by inference statistics using paired test, with the help of SPSS16.00 Key words: Impact, Technical Education, women empowerment
1.
Faculty, Lecturer, Rajarshi Shahu College of Engineering (MCA Department), Tathawade, Pune. Email :
[email protected]
2
Faculty, Assistant Professor, Sinhgad Institute of Management, Vadgoan, Pune. Email :
[email protected]
Technical education in India contributes a major share to the overall education system and plays a vital role in the social and economic development of our nation. In India, technical education is imparted at various levels such as: craftsmanship, diploma, degree, post-graduate and research in specialized fields, catering to various aspects of technological development and economic progress. The beginning of the formal Technical Education in India can be dated back to the mid 19 th Century. The major policy initiatives in the pre-independence period included appointment of the Indian Universities Commission in 1902, issue of the Indian Education policy resolution in 1904 and the Governor General's policy statement of 1913 stressing the importance of Technical Education, the establishment of IISc in Bangalore, Institute for Sugar, Textile and Leather Technology in Kanpur, and Industrial schools in several provinces. Significant developments include: ·
Constitution of the Technical Education Committee of the Central Advisory Board of Education (CABE) of 1943
·
Preparation of the Sergeant Report of 1944
·
Formation of the All India Council for Technical Education (AICTE) in 1945 by the Government of India
All India Council for Technical Education (AICTE) was setup in November 1945 as a national level Apex Advisory Body to conduct survey on the facilities on technical education and to promote development in the country in a coordinated and integrated manner. And to ensure the same, as stipulated in the National Policy of Education (1986), AICTE was vested with statutory authority for planning, formulation and maintenance of norms and standards, quality assurance through accreditation, funding in priority areas, monitoring and evaluation, maintaining parity of certification and awards and ensuring coordinated and integrated development and management of technical education in the country. The Government of India (Ministry of Human Resource Development) also constituted a National Working Group to look into the role of AICTE in the context of proliferation of technical institutions, the maintenance of standards and other
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
related matters. The Working Group recommended that AICTE be vested with the necessary statutory authority for making it more effective, which would consequently require restructuring and strengthening with necessary infrastructure and operating mechanisms. Pursuant to the above recommendations of the National Working Group, the AICTE Bill was introduced in both the Houses of Parliament and passed as the AICTE Act No. 52 of 1987. The Act came into force w.e.f. March 28, 1988. The statutory All India Council for Technical Education was established on May 12, 1988 with a view to proper planning and coordinated development of technical education system throughout the country, the promotion of qualitative improvement of such education in relation to planned quantitative growth and the regulation and proper maintenance of norms and standards in the technical education system and for matters connected therewith. The purview of AICTE (the Council) covers programmes of technical education including training and research in Engineering, Technology, Architecture, Town Planning, Management, Pharmacy, Applied Arts and Crafts, Hotel Management and Catering Technology etc. at different levels. Empowerment of the Rural and the Urban Women: Empowerment of women means developing them as the individuals, of good awareness who are politically active, economically productive and independent and are able to make intelligent decisions in matters that affect them and their nation [ 1 ]. Education inspires people to advance on all fronts. It helps individuals to be more aware of their constitutional and legal rights and of the opportunities available to them to make their lives better. Education also helps people evolve as workers, citizens and human beings. Women's empowerment also refers to the ability of women to transform economic and social development when empowered to fully participate in the decisions that affect their lives through leadership training, coaching, consulting and the provision of enabling tools for women to lead within their communities, regions and countries. The more limited perspective, by editing out the political and ideological dimensions of women's struggle, cannot provide any adequate theoretical basis for women's advancement [ 2 ]. In a patriarchal society, the essential underlying gender-based division is that men have the larger share in decision-making, and women have the larger share of work. This pattern is very much in the male interest, and rooted in patriarchal traditional belief. Women's limited access to resources is based on established discriminatory practices, which ensure male privilege. Women's empowerment is about the process by which those who have the ability to make strategic life choices, acquire such ability [ 3 ]. It is important to understand empowerment as a process and not as an instrumentalist form of advocacy, which requires measurement and quantification of empowerment [ 3 ]. Further it should be emphasized that different cultures have different distributions of power with men making decisions in
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some areas and women making decisions on other issues. [ 3] Decisions on education and marriage of children and marketrelated transactions in major assets tends to be within the male domain. After identifying empowerment as a primary development goal, neither the world bank nor any other major development agency has developed a rigorous method for measuring and tracking changes in the levels of empowerment [4]. If empowerment were simply equated with a role in decision-making and control over household resources then having sons and bringing in large dowries would be women's empowerment[ 4 ]. Yet both dowries and a preference for sons are associated with some of the strongest indicators of gender discrimination in the Indian sub-continent. Economic Empowerment of Women: A majority of micro-finance programmes target women with the explicit goal of empowering them. Some argue that women are among the poorest and the most vulnerable of the underprivileged and thus helping them should be a priority. The economic participation of womentheir presence in the workforce in quantitative termsis important not only for lowering the disproportionate levels of poverty among women, but also as an important step toward raising household income and encouraging economic development in countries as a whole. Amartya Sen makes a compelling case for the notion that societies need to see women less as passive recipients of help, and more as dynamic promoters of social transformation, a view strongly buttressed by a body of evidence suggesting that the education, employment and ownership rights of women have a powerful influence on their ability to control their environment and contribute to economic development. Economic participation concerns not only the actual numbers of women participating in the labour force, but also their remuneration on an equal basis. Globalization has dramatically changed the conditions under which the struggle for gender equality must be carried out, especially in developing countries. One of the important tools of gender mainstreaming, aimed principally at poverty reduction, has been the concept of “gender budgeting,” i.e. focusing attention in the process of budget formulation within a given country in order to assess whether a particular fiscal measure will increase or decrease gender equality, or leave it unchanged. Economic empowerment can be described as bringing income in and by promoting decision-making independence in individuals. Economic empowerment takes into account the economic strength of the individual. There is a widespread belief that economic strength is the basis of social, political and psychological power in society [ 5 ]. Therefore, women with a low economic status would benefit both socially and psychologically from economic strength. Economic activities may widen the range of options for rural women, but they do not necessarily enable women to take action. Personal empowerment enables women to develop the necessary skills and confidence to access resources to achieve their
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A Study of the Impact of Technical Education in Empowering Indian Women —Prof. Asita A. Ghewari1, Prof. Satish N. Pawar2
aspirations. Personal empowerment can be conceptualized in various ways, but personal empowerment is focused on the individual, with defining empowerment as 'the capacity of women to increase their own self-reliance and internal strength'[ 4 ]. This is identified as the right to determine choices in life and to influence the direction of change, through the ability to gain control over material and nonmaterial resources. This concept views the empowerment as focused on individual strength and self esteem to gain control over the available resources and to exercise their right to obtain quality of life for themselves and their family. Existence of an agency is really at the heart of empowerment. It makes empowerment different from other similar concepts. In order for women to be empowered, an inner transformation is necessary [ 4 ].
'enabling factors' [ 4 ] or conditions for empowerment. Instead of focussing on resources as a determinant for empowerment, research should involve studying changes in agency [4, 6 , 8]. In order to study changes in agency, research of a more qualitative nature is required, since changes in control and decision-making are difficult to quantify [ 3, 6 , 7 ]. Domain Subject: Economic domain control over income and assets Social domain movement and interaction of individuals Cultural domain norms and appropriate behaviour Legal domain the rights of individuals Political domain political participation Psychological domain self-esteem and psychological wellbeing [ 4, 8 ] Methodology:
The concept of agency is more than only having more control or power. It involves having the 'freedom to question established values and traditional priorities' [6 ]. For instance, in a traditional joint-family system in India, a woman normally joins the family of the husband after marriage and has a very low status in the household. However, when she herself becomes the mother-in-law later in her life, she will have considerably more control in the household. Although she received more control in her life, this cannot be considered an improvement in agency, since this change is culturally defined. So agency is about the ability of an individual to define his / her own interest and make his / her own independent choice [ 6, 3; 7)]. This is also the reason why the development organizations can only be the facilitators in the empowerment process. Most literature on empowerment focuses on actual action and achievement. It is not only important that women can define their own interest and make their own choices, but that they can also act accordingly, if the opportunity arises. For instance, legal empowerment not only entails women developing a personal preference for a certain political candidate at elections[ 4 ]. They should also be able to actually vote for this candidate as well. This is also the reason why, the efforts to measure empowerment [ 8 ], formulates three degrees of empowerment; the existence of choice, the use of choice and actual achievement of choice for an individual. Finally, most literature states that empowerment is a process and therefore more difficult to study. It involves measuring changes over time, whereas other concepts like gender equality are more static. On a macro-level of studying empowerment, most research focuses on changes in resources as quantitative indicators of empowerment. For instance, increased income- or literacy levels of a certain group would show that they are empowered. This kind of research has been criticised, mainly because empowerment is 'essentially qualitative in nature' [ 3 ] and that 'giving women access to resources does not automatically lead to their greater control over resources' [ 4 ]. Indicators such as income of literacy levels can merely be considered
Research Methodology: Objectives : 1)
To construct a scale of economic empowerment of women
2)
To construct a scale of social empowerment of women
3)
To check the reliability of both the scales
4)
To develop index of empowerment of women
5)
To study the impact of the technical education in empowerment of the In dianwomen
Hypothesis: Technical education empowers the Indian women. Sample Selection: Working/ non working females having technical education like B.E, MCA, MCM etc. were selected by snow ball sampling methods and were administered well structured questionnaire. Sample Size: 47 Instrument/ Construct: Proper scales were developed to measure the economic and the social empowerment of the Indian women. While developing the economic and the social scale ordinal scales( 0 to 4) were used with the help of the following indicators of economic and social empowerment The Economic Indicators of Empowerment
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Index 1
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had to develop a scale to check the reliability of scale.
Asset Home Four wheeler Vehicle Two wheeler Vehicle Bank Saving Account Debit card Credit Card Landline phone Mobile Insurance Policy National saving Certificates Equity / Mutual Funds Investments
To check the reliability of a scale Cronbach's Alpha method is used and the reliability has been found to be 0.721, which is sufficiently large to proceed further. Paired t test is used to test mean score of various indicators of empowerment before and after attaining the technical degree. Table I Mean scores of the various indicators of the economic empowerment index1 Mean Score Mean Score (After Technical (Before Technical Education) Education)
Index 2 Decision Making Participation in day to day Domestic Expenses
(Up to Rs 1000/-)
Participate in Medium size domestic expenses
(Rs.1000-Rs.10,000)
Participate in Large domestic expenses
(Above Rs. 10,000/-)
Social Indicators of Empowerment Received invitations and attended Gatherings amongst relatives
Different
Socia
Received invitation and attended Different Social Gatherings in Public Relatives or friends approached you, for education and career development counselling.
Home Four Wheeler Vehicle Two Wheeler Vehicle Bank Saving Account Debit Card Credit Card Landline Phone Mobile Insurance Policy National Saving Certificates Equity / Mutual Funds Investments Total
Paired t test ( p value)
1.40 1.00
.75 .50
0.02* 0.104
1.70
1.38
0.104
2.22
1.75
0.095
2.62 1.88 1.25 2.20 2.50 1.50
1.14 .71 1.25 1.43 1.12 1.14
0.025* 0.062 1.00 0.111 0.004* 0.363
2.12
1.00
0.086
17.40
9.20
0.004*
*Significant at 5% level of significance. Table II Mean scores of various indicators of economic empowerment index2
Give frequent visits to government offices and public places Resisting domestic violence Asset
Mean Score Mean Score (After Technical (Before Technic Education) Education)
Paired t test ( p value)
Decision Making
Mean Score Mean Score Paired t test (After Technical (Before Technical Education) Education)
( p value)
Participation in day to day Domestic Expenses (Up to Rs 1000/-)
2.12
1.43
0.20
An analysis has been done by using SPSS 16.00. The researchers have tried to calculate various indices of empowerment of women through technical education, like economic empowerment index1, the economic empowerment index2, the social empowerment index and the overall empowerment index.
Participate in Medium size domestic expenses ( Rs.1000-Rs.10000)
2.75
1.86
0.15
Participate in Large domestic expenses (Above 10000/-)
3.12
1.86
0.082
This has been the first attempt by the researcher to excemint and calculate the index of employment of women and hence
Total
6.40
3.60
0.69
Results: Analysis & Results:
*Significant at 5% level of significance.
A Study of the Impact of Technical Education in Empowering Indian Women —Prof. Asita A. Ghewari1, Prof. Satish N. Pawar2
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Table III Mean score of various indicators of social empowerment index
Fig.I Comparision of mean scores of the various indicators of economic empowerment index1 after and before attaining technical education
Mean Score Mean Score Paired t test (After Technical (Before Technical Education) Education)
Received invitation & attended an Different Social Gathering amongst relatives Received an invitation & attended the Different Social Gathering in Public Relatives or friends approached you, for education & career development counseling. Give frequent visits to government offices and the public place Resisting domestic violence Total
( p value)
2.50
2.60
0.78
1.70
1.50
0.34
2.30
1.70
0.16
2.30
2.10
0.44
2.11
2.22
0.34
10.70
9.90
0.42
Table IV Mean scores of economic empowerment index1, economic empowerment index2, social empowerment index and overall empowerment index after and before attaining technical education Various Mean Score Mean Score Paired t test Empowerment (After Technical (Before Technical ( p value) Education) Education) Index 17.4 9.2 Economic 0.004* empowerment index 1 Economic 6.4 3.6 0.69 empowerment index 2 Social 10.7 9.9 0.42 empowerment index Total empowerment 34.5 22.7 0.01* index *Significant at 5% level of significance
Fig.II Comparision of mean scores of various indicators of economic empowerment index2 after and before attaining technical education
Fig.III Comparision of mean scores of various indicators of social empowerment index after and before attaining technical education
Fig.IV Comparision of mean scores of economic empowerment index1, economic empowerment index2, social empowerment index and overall empowerment index after and before attaining technical education
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Discussion: The researchers have developed various indices of empowerment like economic empowerment index and the social empowerment index. The total empowerment index is the sum of economic empowerment index and the social empowerment index. Again the economic empowerment index is split up into two parts economic empowerment index1 and economic empowerment index2, based the on asset possession and expenditure control. Total Empowerment Index = Economic Empowerment Index (Index1+Index2) + the Social Empowerment Index.
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Further, though overall empowerment of women is evident, there is no significant social empowerment of women. Also there is no significant empowerment in respect to spending control of money. The possession of assets like home, debit card, insurance policy economically empower women. There is no such social empowerment of women. Society has to concentrate on this fact. References: Lillykutty; Sr. (2003), Education and Empowerment of Women enhances quality of life', IASSI Quarterly, Vol. 21, Nos.3&4
Here paired t test is extensively used to check mean score of the various indicators of economic and social empowerment index. Thus pair t test is used to check the impact of technical education as intervention in improving and consequently empowering Indian women.
Sida,(2006), Microfinance and women's empowerment'. Evidence from the Self Help Group Bank Linkage Programme in India
It is found that the total empowerment index after attaining the technical education has significantly increased from 22.7 to 34.5 ( p value < 0.05).
Kabeer, N. (2001), Reflections on the measurement of women's empowerment. In Discussing Women's Empowerment-Theory and Practice. Sida Studies No. 3
Since p value is < 0.05, we accept our hypothesis that the technical education empowers Indian women at 5% level of significance.
Malhotra, A., Schuler, S. and Boender, C. (2002), Measuring Women's Empowerment as a Variable in International Development, Background Paper Prepared for the World Bank Workshop on Poverty and Gender: New Perspectives
Though there is a significant increase in total empowerment index, not all the parameters of total empowerment index increase significantly. Though there is an increase in the social empowerment index( from 9.90 to 10.70) and economic empowerment index2 ( from 3.60 to 6.40), this is not a statistically significant increase in empowerment index. All the indicators of social empowerment index show no significant improvement. There is statistically significant improvement in economic empowerment index1( from 9.2 to 17.4, p value <0.05). Further there is statistically significant improvement in asset possession like home, debit card and insurance policy, while other indicators show an improvement, but no statistically significant improvement. One of the indicators “possessing asset landline phone” surprisingly shows no variation after and before attaining technical education (Table I) Conclusion: The technical education as an intervention for empowering the Indian women is accepted by this study, as overall empowerment index improves significantly. (Table IV) Thus hypothesis of this study that technical education empowers Indian women is accepted, as overall empowerment index improves significantly (Table IV)
Sen, A, (2005), The Argumentative Indian, London: Allen Lane, 2005 Rowlands, J. (1997), Questioning empowerment working with women in Honduras. Oxford: Oxfam Alsop, R. and Heinsohn, N. (2005), Measuring Empowerment in Practice: Structuring Analysis and Framing Indicators, World Bank Policy Research Working Paper 3510, February.
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Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
Book Review on Constraints Management, Bookwell, New Delhi, 2009 by S. G. Bhanushali 1
Reviewers : Gawade S. U. , Fernandes B. R.
There are several theories of management that are in vogue. They are developed by practising managers, executives, academicians, management gurus and thinkers. These theories are authored by persons working in or associated with the corporate world. The theory of constraints invented by Eliyahu Musa Goldratt does not fit into any of the above categories. It is a practising gospel developed by a physicist to overcome the obstacles in productive and processing activities. The theory applies rules of a hard science of physics to the soft discipline of management. This is a unique theory of its kind. Constraints Management is a book that discusses, analyses and criticizes the tenets of the theory through various aspects and explains its applicability to practical activities. The book is composed of two parts. First two chapters discuss the theory and trace its evolution from the theories of total quality management and Just-in-Time. Second chapter, is specifically devoted to management conflicts and tools of constraints management. Second part of the book comprises of three chapters. The constraints management can be and is practiced in every human activity. However, the book limits its application to the three areas so as to exhibit the intricacies of application of constraints management and possible problems arising there from . Earlier theories of management were applications of thoughts to the smooth functioning of the organisation. However, theory of constraints is a philosophy. This , distinguishes superiority of latter in comparison to the earlier line of thinking. The book rightly brings to the fore, the continuity of Total Quality Management, JIT management and the theory of constraints. It distinguishes between the TQM and JIT and constraints management .
1.
Head, Research Cell, Sinhgad Institute of Management, Vadgoan (Bk.), Pune 41. Email :
[email protected]
2
Professor, Sinhgad Institute of Management, Vadgoan, Pune 41 Email :
[email protected]
2
The author explains the four stages i.e. defining the system, the goal of the system, necessary conditions to achieve the goal and fundamental measurements to gauge the success. Maximization of the through-put is the objective of the system. This objective can be achieved by identifying the system's constraint, deciding as to how to exploit the same, subordinating everything else to reduce impact of the constraint. This part of the theory is very well explained in the appropriate language and spirit. Similarity between Deming Cycle and Goldratt Cycle are expressively illustrated in a diagram that is a plus point of the book. Constraints management cannot be introduced in hap-hazard manner or cannot be implemented partially. It is to be implemented with full homework, enthusiasm and with all seriousness. Limitations of the theory of constrains are also discussed in the book. The initial part of the Theory of Constraints are, operations , scheduling that looked at materials and resources together to establish a plan that took account of all constraints. Material Requirement Planning (MRP) unfortunately schedules materials and capacity independently. Operations production timetables package identify bottlenecks in plants and set production and material plans simultaneously around best use of resources. This package was renamed as optimized production technology and finally as constraints management. So, the methodology of conflict resolution used in physics is used in management. Naturally, the language of the theory, tools of identifying constraints are quite different from those theories of management. The author has elaborately explained and illustrated the evaporating cloud, the top executive cloud, the care problem cloud, injections, the current reality tree, undesirable effects, the communication current reality tree, the cloud converted into sufficiency logic, the future reality tree, the pre-requisite tree, the transition tree, the drum-buffer rope schedule, effect-cause-effect method, the critical chain. These thirteen theory, of constraints tools are to be used on different occasions. It is important to note that the theory of constraints does not provide set solutions to problems faced by management. Management has to identify the obstacles to managing production and has to find out uncompromising solutions by questioning self. This requires detailed and rigorous training of personnel
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working in the unit at all levels; right from the worker to the chairman. The theory employs Socratic Method of training wherein work is extracted from the participants by asking questions and initiating when necessary. Chapter three explains application of constraints management to production. The initial induction of production process of Drum-Buffer-Rope scheduling and of maintaining ready stock at the mouth of the buffer is well explained and exhaustively illustrated. This is practised in every production activity because it is never balanced. Some machines have larger capacity and some have smaller. Thus machines with smaller capacity become the obstacle, constraint in production. Therefore, jobs are placed at the mouth of the constraint. Constraints management in process industry like petroleum refining, pharmaceutical manufacturing, sugar processing and milk pasteurization are discussed in the fourth chapter. Procuring crude oil of required composition and provision of L.P.G. continuously are found to be two major constraints in petroleum refining. They are addressed by obtaining crude oil of different composition from different sources and by regionalization of bottling facilities of L.P.G. Small processing capacity of mixers is a major constraint in tablet packing department of pharmaceutical unit. It is resolved by continuous running of mixing machine for twenty four hours and by dumping ingredients at the mouth of the mixing machine. Timely availability of sugarcane and of milk is the major constraint of sugar mill and milk pasteurization unit. These problems are resolved by placing sugarcane from whatever sources and by using extra collection of milk. After having discussed as to which activity is named as project, the last chapter in the book has discussed constraints management in water storage dam and software solutions. Unpredictable soil strata, sudden shortage of one of the construction materials and labour absenteeism are the constraints. They are resolved by taking samples of soil strata, overbooking of construction material and recruiting excess labor. Discussion of constraints management of three different activities in Indian conditions has added to the value of the book. Most of the foreign books on management discuss cases from those countries that are ungraspable by the Indian students. Case studies of Indian economic activities have made this book user friendly, reader friendly and student friendly. However, inclusion of cases from three industries has limited the utility of the book. It would have been more useful had the cases from the government administration, education and health-care been included. There was a need to improve some of the diagrams and charts.
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ISSN No. : 0974-0597
Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
Evaluation of Management Control System for Working Capital Management for Small Scale Industry in Pune Shanoy Sunil
Introduction Govt. of India has recognised the importance of SSIs in the process of creation of wealth and employment generation. In the past the govt. had appointed various committees to study the issues relating to working capital and suggest remedies thereon. Sadly, despite all the assistance and support by the govt. and financial institutions; sickness among SSIs has persisted and increased. NPAs have been gradually coming down from 21.36% in 2001 to 5.58% in 2007 but the level of gross NPA has reduced from 15.58% to 2.93% during this period. Thus despite reduction of NPA in small enterprises by 75%, they still stand at double the NPA level in total advances as on 31-03- 2007. In absolute terms, almost Rs 6000 crores of PS banks are blocked in small enterprises NPAs. The data of the Third Census 2001-02 published in the Annual Report 2004-05 of Ministry of Small Scale Industries also showed that 17.8% unit are sick and of these, 46% are sick due to working capital management issues. A SSI going sick is not a trivial issue. It ruins the life of the entrepreneur as well as the lives of families of his workers and suppliers in the chain and creates a financial burden on the banking industry. Bankers with such bitter experience become reluctant to finance any other SSI and thus deprive other entrepreneurs of the financial opportunity and hampering wealth creation and employment generation in the country. leading to lower GDP growth. Thus the issue of SSI is not a minor one but of a major one. The Central Government started an era of globalization and liberalization in India. Doors were opened up to foreign investment and foreign technology. The "Subsidy" regime was coming to an end. Income Tax Act has shed many deductions and exemptions, and new taxes like service tax are being adding to the complexities and costs. Each foreign company coming into India raises a threat to the Indian counterpart, but at the same time, raises demand for many SSIs by way of subcontracted and outsourced work and their requirements for setting up and running of their units.
1
The technocrats have to learn new methods of management and control techniques. The have to make financial institutions forget their bitter experience through proper financial management. This is not possible without a proper managerial thought and controls on business process as well as themselves. The management control systems in SSIs are based mostly on rule of the thumb and the past experience of the promoters. The SSIs do not avail of services of qualified professionals in setting up management control systems. Due to cost and time constraints. There is; therefore; an urgent need for an evaluation of management control systems for working capital management in the SSIs. This study is concerned with deficiencies, strengths and weaknesses in management control systems for working capital management in SSIs. This Study makes an attempt to find answers to many such questions and seeks to suggest ways to improve the situation. Management Control Systems: Management Control Systems for working capital management are those techniques which can be adopted by management of an enterprise to help optimize investment in working capital, throw light on the way the working capital has been managed and suggest possible ways of managing working capital in a better manner. This study enlists such management control systems and studies the actual usage of these techniques by the SSI as well as the financial institutions and banks. The researcher has selected only those systems, which can be implemented by SSIs of a reasonable size in terms of cost, time and managerial suitability. The techniques or systems of management control can be classified as follows: 1. Budgetary Controls
1. Consulting C.A. Proprietor, Sunil Shenoy and Associates Chartered Accountants E-mail :
[email protected]
2. Analytical Controls — Cash Flow and Fund Flow Statements — Ratio Analysis
Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
3. Production Controls — Production Planning 4. Management Policies 5. Debtors Controls — Agewise analysis of debtors 6. Inventory Controls — ABC analysis — Inventory levels — Economic order quantities — Just in time inventory 7. Other techniques — Knowledge resources — Management Information systems — Effective monitoring by banks and financial institutions Objectives, Scope & Research Methodology of the Study: This study has following objectives: 1. To determine the management control systems employed by the SSIs to monitor working capital management. 2. To determine the management control systems employed by the financial institutions to monitor working capital Management of the borrowers 3. To check the effectiveness of the management control systems implemented by the SSIs to monitor working capital Management. 4. To check the effectiveness of the management control systems implemented by the financial institutions to monitor working capital Management of their borrowers. 5. To examine the role of Qualified Professionals in the guidance to SSIs for working capital management and to its effectiveness. 6. To examine the causes of failures of Management Control systems employed by the SSIs and the financial institutions. 7. To suggest remedies to SSIs and financial institutions to make the Management Control Systems more effective. At the beginning of the research; following hypotheses were set: 1. SSIs manage the working capital more by the rule of the thumb method. 2. There is a lack of proper evaluation of the working capital requirements by the banks and their approach is more based on their security requirements than the needs of the entrepreneur. 3. Banks and the SSIs do not effectively use management control systems for working capital management. 4. There is a need for training to be given to the bank staff and the entrepreneurs regarding management control systems for working capital management. 5. There is a lot of scope for use of advice from qualified professionals in the area of management control systems for working capital management. 6. There is scope for improvement in the methodology and implementation of the management control systems for working capital management.
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Methodology of the Study: Secondary Data: Secondary data was collected in the following forms: i. Articles published on the internet ii. Articles published in various magazines iii. Ph. D. & M Phil Theses on relevant topics iv. Books of various authors v. Reports of various government agencies and departments. vi. Personal discussions with various professionals and industry members. This data has been used at appropriate places in this study with due acknowledgment. Primary Data Questionnaires: Primary data consists of the information obtained from SSI units and banks through questionnaires. Samples : The population would consist of all SSI units in and around Pune. Since the population itself is not determinable and due to resource limitations the method of "Purposive Sampling" has been resorted to. SSI: Information on SSIs was taken from DIC and major banks providing funds to SSIs. From this list SSIs were listed having a turnover of Rs. 1 crore and above and established after the year 2000 and which have obtained funds from banks for working capital and term loans. There were approx. 915 such units, of which 75 were selected. Sixty two of the selected SSI units filled up the questionnaires and provide relevant information. Banks: The selection of banks was made on purposive sampling method. Most of the private banks refused to respond. Data was collected from banks having substantial SSI/ industrial funding in the knowledge of the researcher. Out of 9 Banks, which were visited; 4 were cooperative Banks, 4 were nationalized banks and 1 was a private bank. Care has been taken to study different types of banks as financing norms, working practices of various types of banks differ substantially. Findings & Suggestions : Findings of the studies: A. Findings relating to working capital management and MIS: 1. Seventy seven percent of the respondents have "heard" of scientific working capital management. At the same time 75.81 % of the respondents did not actually know various modern techniques of working capital management. This
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Evaluation of Management Control System for Working Capital Management for Small Scale Industry in Pune — Shenoy Sunil
shows that there is a great need for training and dissemination of information regarding scientific tools of working capital management. 2. Eighty seven percent of the respondents did not have a formal MIS System = management information system in their organization but 83.87 % of the respondents felt that they needed a proper MIS in their organization. This shows that even though the SSI entrepreneurs did not have a formal system of MIS, they have realized importance of the MIS and desire to have it in their organization. B. Findings relating to Planning and budgeting as working capital management tools: 1. Eighty four percent of the respondents prepared production plans. Out of these 48.08% respondents prepared production plans regularly on monthly basis. Sixty seven percent of the respondents adhered to the plans. Seventy five percent of the respondents did not even analyse reasons for deviating from the production plan. This shows that though the system of production planning is in place in most of the cases, there is a lot of scope for improvement in this system by analyzing reasons for deviation and taking timely corrective actions. 2. Ninety one percent of the respondents did not prepare capital budgets. Of those respondents who prepared capital budgets only 40% were able to follow the budgets. Eighty seven percent of the respondents purchased luxury assets not provided for in the capital budget. Sixty percent of the respondents did not consider additional working capital requirements at the time of making additions to capital assets. Additions to assets not provided for in the capital budget badly affects working capital requirements of the enterprise that could prove fatal. This shows that this factor still continues to rule the financial behaviour of the SSI entrepreneurs. 3. Sixty five percent and 75.81% of the respondents did not prepare cash and expenditure budgets respectively. In 87.5% of the cases, budgeted figures were not compared with the actual figures. This shows that the tools of the budgeting are not effectively used for working capital management. C. Findings relating to Debtors Management as tool of working capital management: 1. Though 80.65% of the respondents prepared age- wise analysis of debtors, 72.73% of them did not take immediate action on debtors outstanding for more than credit period. This defeats purpose of the tool called as "Age wise analysis of debtors". 2. Eighty seven percent of the respondents were not aware of "factoring". Of those who were, aware 75% did not use "factoring". This shows that factoring has not yet reached the masses effectively.
3. Even though 74.07% of the respondents were aware that having only a few big customers is not desirable, 87.1% of them were relying on a few big customers. Relying on a few big customers is not a wise policy but still SSIs have resorted to this practice; albeit by compulsion. 4. In respect of respondents having a formal MIS, most of these did not reflect information such as doubtful debts and interest lost on overdue debtors. Thus the MIS loses its significance so far as working capital management is concerned. D. Findings relating to Inventory Management as a tool of working capital management: 1. Eighty nine percent of the respondents were not aware of ABC analysis, EOQ system and "Just in Time" inventory management. This indicates that these techniques have not yet reached the mass of the entrepreneurs. Of those respondents who used the above-mentioned systems, none used these systems scientifically. This underlines the need for proper training. 2. In respect of respondents having a formal MIS, most of these did not reflect information such as work in progress held for overdue time, unbilled deliveries, made to order goods not delivered, dead stock, excess stock and wastage of material. Due to this the MIS loses its effectiveness so far as working capital management is concerned. 3. Eighty one percent of the respondents indicated that the stock statements given to bank are prepared on adhock basis. But stock statements prepared on adhock basis can not help the banks to understand the real working capital management position of the entrepreneur. E. Findings relating to other working capital management tools: 1. All the respondents had obtained working capital funds from their bankers. Ninety five percent of the respondents were not aware of sensitivity analysis. They were of the opinion that project report is prepared just to obtain bank finance. Three percent of the respondents felt that "Project Report" is a futile exercise. Eighty four percent of the respondents informed that their project report was based on adhock figures and was adjusted to suit bank requirements. This throws light on the way entrepreneurs look at "Project Report". 2. Eighty one percent of the respondents were not aware of various schemes and incentives for SSIs and 91.94% of the respondents was not aware of financing schemes of SIDBI. None of respondents were aware of "Interest on Delayed Payments to Small Scale Industrial Undertakings Act 1993". This indicates that the Govt. schemes have not yet effectively reached masses.
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3. Fifty six percent of the respondents indicated that they faced shortage of funds for meeting day to day expenses. Fifty seven percent of these felt that this was due to recovery problems. Eighty nine percent of the respondents admitted that they borrow money from open market in times of emergency. This indicates poor working capital management and failure of banking system to some extent.
sensitivity analysis of projections. None of the bankers obtained copies of MIS of their customers. Seventy eight percent of the bankers do not study ratios other than debtequity, DSCR, Current Ratio, Gross Profit and Net Profit ratios. Ninety percent of the bankers visit their customers only once in a year. None of the bankers obtain copies of budgets from their clients. This throws light on the present day credit appraisal and monitoring policy.
4. Eighty four percent of the respondents admitted that their "withdrawals" from the business were adhock and need based. This adversely affects cash flow planning.
3. Eighty nine percent of the bankers have not organized any seminars/ lectures/ training for their SSI customers. Sixty seven percent of the bankers were not aware of various schemes and incentives for SSIs. Seventy eight percent of the bankers were not aware of various financing schemes of SIDBI; 89% were not aware of "Interest on delayed payments to Small Scale Industrial Undertakings Act 1993"; and 78% did not study the trends of the business of their customers. This underlines the need for more training in this area.
5. Sixty one percent of the respondents admitted diversion of working capital towards fixed assets. Fifty six percent of the respondents admitted that fixed assets are normally financed out of working funds. This shows that diversion of working capital is still an uncured disease. 6. Even though ninety five percent of the respondents had employed a person specifically for managing finance/ accounts; in 87.72% of the cases, the person was not professionally qualified. Ninety four percent of the respondents did not consult a qualified professional for working capital management or issues relating thereto. Out of these 77.59% refrained due to fear of high cost of advice. But at the same time 67.74% respondents felt the need for advice by qualified professionals. All the respondents informed that they had taken help of qualified professionals at the time of preparation of project report. But in 75.81% of the cases the professionals did not explain to them the importance of project report. This throws light on the present role played by qualified professionals in the working capital management of SSIs and the further scope in this area. 7. None of the respondents employed cash flow and fund flow techniques and standard costing system. Ninety seven percent of the respondents did not use ratio analysis for working capital management. This highlights the need for education and training. F. Findings relating to the role played by banks in working capital management of their borrowers: 1. Fifty six percent of the bankers admitted that while sanctioning working capital facilities more weightage was given to security. Sixty seven percent of the bankers refused to finance solely against stock and debtors. Fifty six percent of the bankers refused to finance a viable unit without collateral security. 2. Seventy eight percent of the bankers did not obtain cash flow statements from their customers and of the 90% bankers obtain financial statements of the borrowers on yearly basis at the time of renewal of credit facilities. Seventy eight percent of the bankers do not obtain
4. Seventy eight percent of the bankers did not compare actual results with the projected results. An equal proportion do not ensure that their customers pay legal dues in time. This shows deficiency in credit monitoring. 5. Sixty seven percent of the bankers did not utilize services of qualified professionals for credit monitoring; 89% do not avail of services of professionals for evaluation of proposals; 80% do not have policy of availing services of professionals for evaluation of proposals; 67% have a system of stock audits of their customers and 78% do not have a system of receivables audit. This indicates a scope for services of qualified professionals in the area of working capital management/ monitoring. Suggestions: 1. A Model MIS report should be prepared and distributed among SSI entrepreneurs. This model MIS report should incorporate all vital ratios and should utilize all other tools of working capital management suitable for small scale industries to the extent possible. 2. Entrepreneurs should be trained and encouraged to plan their production and follow those plans. Deviations from the plans should be documented and studied to avoid repetition of mistakes. 3. Banks should insist upon and obtain a copy of capital budget of their borrowers. Any addition to asset beyond the capital budget must be discussed with the bankers before the addition takes place. 4. Tools of cash and expenditure budgets should be effectively used. Entrepreneurs should be trained and educated in this regard. 5. Banks should use age-wise analysis of debtors more aggressively and caution the borrower about doubtful debts. 6. Service of "factoring" has not yet reached the SSI entrepreneurs fully. Banks and financial institutions providing this facility have to make efforts in this regard.
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Evaluation of Management Control System for Working Capital Management for Small Scale Industry in Pune — Shenoy Sunil
7. Banks and financial institutions have to be extra cautious in respect of SSI relying on single customers. SSI units reducing their reliance on single customer may be suitably rewarded by way of discount in rate of interest. 8. Special efforts should be made to educate entrepreneurs regarding inventory management tools like ABC analysis, Just in time and EOQ systems. 9. The banks; especially to avoid manipulated stock statements; should carefully scrutinize stock statements received by them. Period-wise comparison of Gross Profit ratios of various products shall help to detect stock manipulation. Banks should physically verify stocks on surprise basis periodically in all cases. In case of large borrowers, stock audit by qualified professionals should be compulsory. 10. The banks should not take project reports as a mere formality. As far as possible, the financials may be verified from the market and actual results of competitors. Sensitivity analysis should compulsorily be a part of a project report. In case of large borrowers, project reports should be vetted by an external, qualified professional. Actual performance should be strictly compared with project report and the reasons for deviation should be deeply studied. Negative deviation beyond a certain limit may result in little higher rate of interest. 11. The govt. should give wide publicity to various schemes and incentives for SSIs. SIDBI should give wide publicity to its financing schemes. Whenever any unit gets registered as SSI; a booklet containing information of various schemes, incentives and benefits should be handed over to the entrepreneurs free of cost. Bank officials in direct contact with the SSI borrowers should be specifically trained in this regard. Banks should ensure that their SSI borrowers avail maximum advantage of these schemes and incentives. 12. In times of emergency, SSI entrepreneurs have resorted to borrowing funds from the open market. Banks should set up a system whereby deserving SSI entrepreneurs are provided funds in shortest possible time without bureaucratic delays and formalities. 13. Many small scale industries may be negligent in timely payment of various taxes like advance tax, TDS and Sales Tax. Whenever tax authorities detect such negligence; the bank accounts of such defaulters are attached because of which the working capital cycle comes to a halt. Banks should take care to see that their borrowers pay all statutory dues in time. 14. Banks should ensure that the SSI entrepreneurs make planned and predetermined "drawings" from the business. Ideally banks should obtain a statement of drawings on a monthly basis. Whenever heavy/ disproportionate drawings are made from the business, the banks should make a detailed enquiry to discourage diversion of funds. 15. Banks should obtain cash flow and fund flow statements on a quarterly basis to prevent/ detect diversion of funds. Diversion of working capital should be taken very seriously and banks should setup a proper system to identify and immediately act on such diversion of working capital. Bank officers allowing / neglecting diversion of
working capital should be made personally responsible for any loss arising thereby. 16. Entrepreneurs do feel need of advice of qualified professionals but they refrain due to fear of high cost of advice. Professionals now have to prove the worth of their advice by way of a cost benefit analysis. 17. Ideally a project report should be prepared based on a market survey and actual data as far as possible. A project report prepared in this way demonstrates viability of a project. Therefore a great responsibility is cast on qualified professionals to prepare a project report on a scientific basis, to guide their clients objectively regarding viability of the project and assist them in raising funds from banks in a fair way. 18. While sanctioning working capital facilities minimum thrust should be laid on value of collateral security. The bankers should evaluate the end use of the facilities and the need of the entrepreneur. The process of evaluation of working capital facilities should be as fast as possible. Working capital requirements of certain industries may vary from time to time. Considering this seasonal trend, banks would be in a position to predict higher working capital requirements of such industries and be proactive. 19. Banks should arrange seminars/ lectures for their borrowers to educate them about various facets of modern techniques of working capital management. Many banks organise such training for their staff members. SSI entrepreneurs may be allowed to attend such training at a nominal cost. 20. Many banks have study cells at their Head Offices, which study business trends of different industries. The results of these studies should be made available for the benefit of SSI entrepreneurs. 21. Banks should utilize services of qualified professionals for working capital monitoring. Some banks have already taken a step in this direction. However the scope of work of this professional should not be restricted to a "Watch Dog" but should be that of a "Friend, Philosopher and Guide". Stock audits and receivables audits should be made compulsory at least in case of borrowers of large amounts.
ISSN No. : 0974-0597
Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
A Study of the Business Practices of Vaishya Communities in India Sovani Smita
Introduction: The world claims that the concept of 'Business Management' is introduced by the West. It is also claimed that the science of Management is about 250 years old; its evolution started after the industrial revolution. The early research in this field was done in Germany, France, England & America. 'Management' is learnt from the Western books. Most Management experts are from the West. The names that instantly appear before the eyes of a Management student are Adam Smith, Henry Fayol, Fredrik Taylor, Paccioli, Elton Mayo, Philip Kotler, Peter Drucker …. But Indian civilization is far older than this. Then a question comes to an Indian mind, were there no businesses in India before western management evolved? Did Indian economy survive without business enterprises? If there were business enterprises, were all of them unsuccessful for want of good management? If there were business enterprises in existence in India, some of them must be successful. Would these businesses follow no principles, no values, and no systems? Would their businesses be very ad hoc, unplanned, poorly managed, loss making? Were there no authors who had thrown light on business practices? Were there no guiding principles for the businessmen? The researcher started the research at this point with an intention to find out the answers to these questions. Literature Review: A review of the ancient Hindu literature was taken to find out the answers to the questions noted above. The researcher went through the books like 'Kautilya Arthashastra' by Chanakya (also known as Kautilya), which is not only a book on Economics but also on public administration. 'Vidoor Neeti' by Vidoor (Dhrutarashtra and Pandu's younger brother) explains strategies to manage a state. 'Manusmruti' by Maharshi Manu talks about the rules to be followed by the king, the citizens, and different businessmen in the society. Tukaram's abhangas have given a number of insights for the
1.
Asst. Professor, Sinhgad Institute of Management, Vadgoan, Pune 41 Email :
[email protected]
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people having a desire to earn money. Samartha Ramdas has given a number of insights through Dasbodha for managing business successfully. These books have made an attempt to draw guidelines and teach management to the businessmen. From the review of the literature, it is noted that there are many guiding books written since the ancient times; although they are less read by the society for reasons manifold, they can lead the researcher to the path of finding the style of management followed by Indian businessmen. To understand the contemporary scenario, a study of the annual reports of Vaishya companies and the biographies of the famous Vaishyas were reviewed. The Vaishyas: The Manusmruti, which was the first ever written text on Hinduism, some 3000 years ago, has explained the concept of four sections of the society, namely, the Brahmins, the Kshatriyas, the Vaishyas and the Shudras. The Brahmins were the academics in the society. They were supposed to learn & teach, carry out research, perform rituals etc. The Kshatriyas were the warriors in the society. Their duty was to rule, to judge, to administer justice, to fight with the enemies and, as rulers, to keep their subjects satisfied. The Vaishyas were the businessmen in the society. They would be engaged in agriculture, supply goods as per the demand of the people, trade in groceries and other things of necessity, comfort & luxury to people. They were in charge of providing good standard of living to the society. The Shudras were the service providers to the first three Varnas. They would be engaged in manufacturing of goods and providing a broad range of services to the other Varnas. This makes a clear division of labour in the society, thereby, vesting the field of business to the class of Vaishyas. The researcher studied the chapters from Manusmruti that gave guidelines on the business practices a Vaishya should follow. They are related to the education of a Vaishya, which businesses he should take up as a profession, the legal framework for doing various business activities, the punishments for breaking the rules, the procedures for borrowing-lending and the code of conduct for a Vaishya etc. The Present Status of Vaishyas: The next stage was to study the present status of the Vaishyas. This was essential to understand whether the Vaishyas sill hold
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A Study of the Business Practices of Vaishya Communities in India —Dr. (Mrs.) Smita Sawani1
a large market share in Indian business. If they would, the researcher would further analyse the way they do the business and develop an understanding of their business practices. The research revealed that even today the market share of Vaishyas is approximately twice the share of non-Vaishyas in India. This point is explained in the chapter 'The present Status of Vaishyas in India'. The business practices of the Vaishyas were studied in a well planned manner. The methodology followed was as under. Research Methodology: The researcher found out that earlier much research is not done in this field. So the type of this research suitable for this study was Exploratory, Qualitative and Inductive research. Emphasis was given on searching and identifying the business practices of the Vaishyas and understanding the philosophy underlying the same. After studying the business practices and the success parameters of the Vaishya community in India, the data was compiled and made available to the potential aspiring businessmen of tomorrow. This is explained in the annexure. The methodology for this research was as under. Objectives of the Research: 1. To explore, identify, search and compile the business practices and underlying philosophy of Vaishya Community managed businesses. 2. To document these concepts and practices of the Vaishyas for the reference of the posterity.
Literature review : This stage is based on the secondary data. Here the earlier studies done by other researchers are used as the basis for further studies. Secondary data is collected through different sources like: (i) The publications of various Vaishya Federations. (ii) Old Sanskrit literature: Manusmruti and Vedas. (iii) Bio-data study of business leaders from Vaishya Community. (iv) Biographies and autobiographies of businessmen and industrialists from Vaishya Community. (v) Different magazines and newspapers. (vi) Jain literature. (vii) The Annual reports of companies run by Vaishyas. Field study: The researcher independently collects the required data for the research purpose, which is known as the Primary data. Primary data is collected when the secondary data in hand are inadequate to conclude upon the research problem. Here the researcher has done the field study in the following ways. (i)
Interviews
(ii) Mailing the Questionnaires
The Hypothesis:
(iii) Participant Observation Method
Hypothesis is a shrewd guess that gives a direction towards the solution of the research problem. This is an exploratory research. In this research, the success parameters of the Vaishyas are not known. The research aims at finding out the reasons why Vaishyas become successful in business. The purpose of this research is to explore and document the business concepts and practices of the Vaishya Community in India and to generate a theory for Indian management practices. The hypothesis for the research was developed by closely observing and judging the everyday tactics of the Vaishyas. It is then expressed in a form of declarative statement.
Case Study :
Thus, the hypothesis for this research is "Vaishya Communities in India follow unique business practices that make them successful in business, Trade and Industry." This hypothesis provides a direction towards the right research design. The steps in this research: This research is carried out in the following distinct ways.
Case study is development of intensive knowledge about an incident, a person or an organization used to gain understanding of the research problem. This method contributes in collection of information related to the subject of research to develop the understanding of the subject in depth. The study of a particular case may not be applicable to another case. Thus, case study does not aim at giving standard solutions applicable to problems identified, but it gives the details regarding how particular problems were handled earlier. The researcher collected a large number of cases of leading Vaishyas in India. The cases are picked from newspapers, magazines, biographies and autobiographies. These cases stand as the empirical examples of the skills of the Vaishyas to solve real life complex problems in business. Scope of the Research: It is essential to elaborate the extent of the study in the beginning of the research. In the arena of information explosion, in absence of the scope of research, the research process may become endless. Therefore the scope is defined as under.
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i.
Hindu Vaishyas are included in the research. Hindu non Vaishyas i.e. Brahmins, Kshatriyas and Shudra areexcluded.
ii. The religions born out of Hinduism, i.e., Boudda, Sikh, are excluded from the research. Jains are included for the simple reason that the Marwadi and Gujrati Jains own a large share in the ownership of top 200 Indian companies as well as in small and unorganized sectors of business. iii. The non-hindu businessmen born outside India i.e. Christians, Muslims and Parsis are excluded from the research. iv. The Vaishyas from North-Eastern zone are not included in the research for two reasons.
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15 to generalize the observations. Thus, interviewing 15 individuals from each community is thought sufficient. Data Interpretation and Analysis: After the stage of data collection, the data was processed through three stages viz., Editing, Classification and Tabulation. Afterwards, the data was interpreted to drawtheinferences. Most of the data collected was qualitative in nature. Conclusions: The researcher concludes from the research that Vaishyas become successful in business due to the following reasons. Vaishya Work Philosophy:
(a) In the last century, many residents of these states are converted to Christianity or Islam. (b) Most parts of these states are still tribal and there are no significant Vaishya communities over there that can contribute towards this research. (v) The Vaishyas who have migrated to different countries of the world for business purpose are excluded from the research.
Vaishyas practice a work ethic, better suited to business. In fact, a differentiating characteristic of the Vaishyas as compared to non-Vaishyas is their workethic. A majority of them believe that economic reward and effort is and should be co-related. They work hard and expect to reap the reward. The researcher observed that hard work, to be precise, working for 10-12 hours a day is taken as a normal work load by Vaishyas.
Sample Design:
Vaishya Teaching & Training Methodology :
A survey can be 'Census' survey or 'Sample' survey. In census survey each and every respondent in the population is contacted to get the data. If all the elements of the population are not known a sample survey is done. Here, the sample of the total population is selected using some scientific method. Only the selected respondents are contacted and generalizations are made on the basis of the data collected. Sampling
Teaching & Training Methodology in Vaishya Families is highly practical. The child born in the family is associated with the family business since childhood. He is not pampered as far as the business matters are concerned. He is made to work at all levels in all capacities in the family business. Right from the age of 7-8 years, he spends much of his time with his father or the 'Karta' of the family business where he learns from observation.
Sampling design can be done in two ways viz. Probability Sampling and Non-probability Sampling. Probability Sampling is a method of sampling where every element has a chance of being included in the sample. In non-probability sampling the emphasis is not on drawing statistical inferences but on the subjective judgment of the researcher. In absence of the complete source lists of the Vaishya population in India; probability sampling became impossible here. So nonprobability sampling was done. Experts have stated that Purposive Sampling is the most suitable method where;
Religiosity:
(a)
the universe is not clearly known
(b)
the complete source list is not available.
In this research both the above conditions are fulfilled, so the method of sampling adopted is purposive sampling. Proper care was taken to avoid bias. A pilot study of 20 individuals from a Vaishya community was done. It is observed that the similar business practices are illustrated repeatedly on interviewing about 8 to 10 individuals. As explained by the well known research scholar and consultant, Dr. Chris Hart, the minimum size of sample in purposive sampling should be
Religious activity is a major aspect of Vaishya's community life. Most of them perform the rituals, attend the Satsangas of Gurus, get involved in religious gatherings on auspicious occasions and spend willingly on such occasions. Religious congregations are looked upon as social get-togethers where friends and relatives meet. These activities provide the bonding for keeping the family together. They provide stress relief also. In an activity such as business where risk taking cannot be avoided and uncertainties are common, faith in God could provide the needed psychological support for a decision-maker. Another important role played by Religious activities is that they provide for a clean and socially acceptable method for spending free time for both male & female members of the family. At the same time, the male members get a chance to exchange vital business information at such events. Family Bonding: Strong ties within the family and the community is also a big strength of the Vaishyas. It is taught to them that it is their duty
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A Study of the Business Practices of Vaishya Communities in India —Dr. (Mrs.) Smita Sawani1
to help another person from the same community in his needs. This builds a sense of belonging towards the community. Attending weddings and other ceremonies, religious functions and especially funerals is considered very important. Substantial give & take occurs on such occasions, even at funerals, to support the weaker segments within the community. Vaishyas also follow some discipline in the family to maintain their unity. In case of any dispute the word of the eldest person in the family is final. Whoever takes the decision is an elderly, experienced, capable person. Therefore the chances of going wrong are also perceived to be also less. Financial Discipline: Minimum Extravagance is a unique quality of Vaishyas. Most Vaishyas are brought up with training in subtle as well as in explicit manner to save wherever possible and in whatever way available. Whenever they purchase for business purpose or otherwise, they purchase at the lowest possible rates. Whenever they have to spend they spend minimum. Even at times they are criticized for being 'close fisted' in whatever they do. A positive effect of this attitude is that this community generally manages the funds wisely. When they need to invest in attractive opportunities they have accumulated reserves and can invest at the right time. The dependence on loans is less. Even if they decide to borrow, because of the accumulated asset base, they get loans easily. This places them at a vantage position over other community businessmen. Numerical and Accounting Abilities: A head for numbers is also a well-known Vaishya Trait. Being extremely quick with mental arithmetic, sometimes with the help of home-grown short cuts, the Vaishyas can outmaneuver their counterpart in deals, which need to be made across the table or on phone. Many of them are able to make calculations without the help of calculators. Needless to say, Vaishya businessmen dominate speculative trade whether in shares, commodities or bullion. Vaishyas also posses excellent memory. They quickly recall different figures like amount of credit given to various customers, the balances due, current prices and the prices prevailing in the past. This trait develops an insight about accounting, profitability and cash position of business. Information Systems: The Vaishyas have a unique information system, which remains unexplored for centuries. The vital business information is transmitted to the key persons in the business at the right time. All the six parameters mentioned above contribute to the unique information system of Vaishyas. Because of the hard working nature of the Vaishyas they remain present at the work place as long as possible, enabling them to acquire the important business details immediately on their occurrence. Thus, there is no time lag between the incidence and the reporting of the same to the business owner.
Recommendations: The researcher tried to track the success parameters of the Vaishyas; however it was also found that the number of Vaishya companies that appears in Fortune 500 companies is Only 2. According to Fortune 500 Global, July 2005 issue, rank 253 is Mittal Steel and rank 417 is Reliance Industries. It means that there are some limiting factors that must be restricting the Vaishyas from becoming successful on larger scale. The researcher has identified such problem areas and suggested some means to overcome the same. The researcher recommends that: 1. All Vaishyas should conduct a SWOT analysis. They should identify the mistakes and act upon them at right time. 2. They should come out with better succession plans to keep sibling rivalry away. The business should be expanded or diversified at proper time to avoid business splits. 3. Efforts must be made to keep business issues and family issues distant to avoid disputes in family as well as in business. 4. Developing professionalism in management is a must for survival in today's competition. This needs that Vaishyas take more and more professional education and combine the modern education with age-old wisdom. 5. The expenditure on philanthropy should be brought to the notice of society at large. This will help them improve their image before non-Vaishyas in India. 6. They should take efforts to bring transparency in business procedures and delegate the decision making with the subordinates. 7. Investment in technology is, again, must for withstanding the competition from the national and global players. 8. In short, the researcher can state that the Vaishyas should bring about an attitudinal change for adjusting with the change around them. India has a rich legacy in culture, arts, crafts, philosophy etc. India has contributed a lot to the world through the science of Ayurveda (Indian form of medicine) Yoga (Indian technique of exercise and mind control), the art like classical music, the divine teaching of Adhyatma (Indian philosophy). India has a lot more to offer to the world in the arena of business and management. This research makes an attempt to bridge this gap. The researcher is sure that this research benefits the future generations.
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Annexure : 1. Annexure A: Articles and papers written during the research period at international and national level. 2. Annexure B: Glossary of the Sanskrit / Hindi / Marathi terms used in the thesis 3. Annexure C: The Experts Consulted during the research period 4. Annexure D: A list of some of the Legendary Vaishyas in India 5. Annexure E: Questionnaire
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Luthans Fred (1998). Organizational Behaviour. MGH International Edition. Mehra, J.M. (2006), Ph.D. Thesis on the industrial pockets in different locations in Maharashtra,. Pandya, Dinkar (2004). Dhirubhai Ambani. Translated by Girish Dabke. Navachaitanya Prakashan. Shajahan (2005), S. Research Methods. Jaico Publishing House. Singh and Nath (2005), Research Methodology. APH Pub., New Delhi. Sinha P. K. (2003), Management Control Systems, Nirali Prakashan. Timberg, Thomas (1978). The Marwaris. Ph.D. Thesis at Harward University. Vikas Publications. Wilkinson and Bhandarkar (2000), Methodology and Techniques of Social Research. Himalaya Publishing house.
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Sinhgad Business Review Vol. - I, Issue - I, July 2009 - June 2010
Guidelines for Authors
SBR- Sinhgad Business Review is a peer-reviewed journal with an ISSN No. 0974 - 0597. SBR welcomes original papers on management, business, and organization issues from both academicians and practitioners. Researchers are requested to submit original research papers, management case and management/computer book review for publication in the journal. Exceptionally high quality theoretical and empirical research papers in management and computer application will be considered for publication. The author(s) of the accepted paper will be offered Rs. 2500 per paper. — Research paper includes research articles that focus on the analysis and resolution of managerial and academic issues based on analytical and empirical or case research. — Case describes a real-life situation faced, a decision or action taken by an individual manager or by an organization at the strategic, functional or operational levels. — Book Reviews covers reviews of current books on management. — Abstracts includes summaries of significant articles of management/computer interest published in Indian and international journals particularly those focusing on emerging economies. All tables, charts, graphs, figures and footnotes should be numbered with title consecutively in the text in Arabic numerals and should appear in the manuscript as near as possible to the place where they are referred to the text. All graphs should be black and not in colour. All figures should be indicated in million and billion. Wherever copyrighted material is used, the author(s) should be accurate in reproduction and obtain permission from copyright holders, if necessary. Lengthy tables and mathematical proofs should be placed in an appendix. Number and complexity of such exhibits should be as low as possible. Source of tables should appear below respective tables. Manuscript Parameters: The manuscript should be clearly typed in double-spaced on quarter size [A4- Europe] paper with one-inch margins all around. The manuscript should be in Times New Roman with
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Sinhgad Business Review — ISSN No. : 0974-0597 — Vol. - I, Issue - I, July 2009 - June 2010
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Roy, A., (1998b) Classic Chaos, McMillan Publishing Enterprise, New York, pp.
attachment to the editor at
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Edited Book: 1. Pennathur, A., Leong, F. T., & Schuster, K (Eds), (1998), Style and substance of thinking, Paradise Publishers, New York, pp.
Blind Review Process: The author's name should not appear anywhere in the body of the manuscript to facilitate the blind review process. Every paper for SBR will have 'Double Blind' referees review. The review process usually takes about three months to one year. The editor of SBR reserves the right of making editorial amendments in the final draft of the manuscript to suit the journal's requirements.
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Chapter in the edited book: 1. Kumar, S. (2004),"CRM in Retail Banking", Edited book - CRM in Banking - Concepts and Cases, edited by V V Gopal, The ICFAI University Press, 2004, ed 1, ISBN 81-7881-383-1 Journal Article: 1. Baker, M. and Gilbert, A. (1977). "The impact of Physically Attractive Models on Advertising Evaluations", Journal of Marketing Research, 14(4),538555 Conference Proceedings Publication: 1. James, W. and Ryan, M. (2001). "Attitude Towards Female Sports Stars as Endorsers", Proceedings of ANZMAC Conference, Massey University, Auckland, 1-8 Paper presentation reference: 1. Darrat, F Ali and Zhong, Maosen (2001), "Equity Market Integration and Multinational Trade Agreements: The case of NAFTA", Presentation to the 2001 Annual Meeting of Financila Management Associaiton Internaitonal Toronto, Cnada, October 17, 2001. Government Publication: 1. Ministry of Law, Government of India, (1960), The Copyright Act, 14 of 1957, Delhi, pp. Unpublished Manuscript: 1. Pringle, P.S., (1991), Training and Development in 90s, unpublished manuscript, Southern Illinos University, Diamondale, IL, pp. Newspaper Article: 1. The new GM pact, (1998, July 28), Concord Tribune, p-1 Websites: NCAA Committee on Sportsmanship and Ethical Conduct, Retrieved February 9, 2004, from http://www1.ncaa.org/membership/governance/assoc-wide/ sportsmanship_ethics /index.html Manuscript Submission: The author(s) should send three hard copies of the manuscript along with softcopy in CD form. The author can also send a soft copy of the manuscript in MS-Word format as an e-mail
Proofs: Correspondence and proofs for correction will be sent to the first author unless otherwise indicated. Copyright: Articles published in SBR should not be reproduced or reprinted in any form, either in full or in part, without prior written permission from the editor. Accepted Papers and Reprints: The Editor of SBR will inform the author(s) of the acceptance of paper for publication in SBR. A Copy of SBR journal and 20 reprints of your paper will be sent to you at free of charge by Editor, SINHGAD BUSINESS REVIEW (SBR), The Research Journal of Sinhgad institute of Management, Pune. Correspondence: All the correspondence may be addressed to : The Editor, SINHGAD BUSINESS REVIEW (SBR) Research Journal of Sinhgad institute of Management, S.No. 44/1, Vadgaon (Bk), Off Sinhgad Road, Pune-41 Phone No: 020 -24356521, Cell: 09890247127 e-mail:
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Vol. - I, Issue - I, July 2009 - June 2010
Sinhgad Business Review
S. No. 44/1, Vadgaon (Bk.), Opp. Sinhgad Road, Pune - 411 041, India. Ph. No. : +91 - 20 - 2435 6921, Telefax : +91 - 20 - 2435 6592 www.sinhgad.edu, email :
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ISSN No. : 0974-0597
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S B R - R e s e a r c h J o u r n a l O f S i n h g a d I n s t i t u t e O f M a n a g e m e n t, Pune.
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